On Tuesday, executives from Apple Inc. (AAPL) and Google Inc. (GOOG) were given an opportunity to explain their position regarding the measures taken by them to resolve the highly debated issue of location data collection on smartphones and other mobile devices.

Led by Senator Al Franken, the newly formed Senate Judiciary Subcommittee on Privacy, Technology and the Law is bent on increasing legislation to protect users’ privacy. Year to date, there have been at least five related legislations, three of which were designed to empower users to turn of tracking (as reported by WSJ).

Apple’s position with respect to tracking was that it had provided such an option to users. However, a bug in the system was responsible for continued storage of data.

Apple said that on discovering the bug, it had developed and introduced a free software that finally took care of the problem. Google said that it did not collect any location information unless the user specifically allowed it to do so by clicking the “share my location” button.

While both companies said that location information was collected and stored anonymously, it was independently proved that a smartphone could usually be located within 100 feet of its exact location using data on WiFi networks. 

The other really contentious issue was regarding the location information collected by popular apps. This is being viewed particularly negatively, since apps collect location information without the users’ knowledge. The legislative body is pushing the tech giants to require app developers to display privacy policies.

While Google has agreed to such as policy, Apple said app developers on the iOS platform sign an agreement by which they agree to inform users how they will use their data. However, irrespective of what the two companies do, we expect further legislation that would ensure privacy or legal consequences in the not-to-distant future.

Google (and also Apple, since its acquisition of the ad company Quattro last year) may be required to explain exactly how the location data is used by them to deliver relevant ads. We think the companies are unlikely to be too forthcoming on this front keeping in mind competitive considerations.  

No matter what the pressures, demand for location-based services is accelerating, so it will not be possible to stop data collection altogether. According to the research firm Gartner Inc., there is a $2.9 billion market for location-based services and it is expected to grow to $8.3 billion by 2014.  Therefore, the only way to deal with the situation is likely further legislation.

APPLE INC (AAPL): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
Zacks Investment Research