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I came across another discussion on the use of Google Apps within K12 organizations -- this is a lightly edited version of my reply in that thread:

With Google Apps, the real value for Google isn't in "owning" your content. The value for them is in mining it, and then using that information to hone their business selling ads and working with affiliate advertisers -- and their privacy policy expressly states that your data will be used in this way.

From Google's Privacy Policy, at http://www.google.com/privacypolicy.html

Log information – When you access Google services, our servers automatically record information that your browser sends whenever you visit a website. These server logs may include information such as your web request, Internet Protocol address, browser type, browser language, the date and time of your request and one or more cookies that may uniquely identify your browser.

So, they can track a request for a specific web site to a specific user, and can keep track of what an individual does over time.

Affiliated Google Services on other sites – We offer some of our services on or through other web sites. Personal information that you provide to those sites may be sent to Google in order to deliver the service. We process such information under this Privacy Policy. The affiliated sites through which our services are offered may have different privacy practices and we encourage you to read their privacy policies.

The approximate translation: when using Google Apps, you might get sent to another site, and this site might have a different privacy policy, and this site might share a different set of your private information with us. You may or may not know when this is happening, but it's your responsibility to know when to check for the privacy policy of these sites.

Then, the policy goes on to list why Google is collecting this information:

• Providing our services, including the display of customized content and advertising;
• Auditing, research and analysis in order to maintain, protect and improve our services;

I've chosen a very small section of the privacy policy here, but the full policy goes into much more detail, including info about geographical data.

For a sense of what can be inferred from even very rough user data, take a look at the fallout that occurred when AOL released search data from it's userbase. This search data is nowhere near as precise as what Google collects, but it still revealed an astonishing range of information about its users.

So, when schools are using Google Apps, every member of that community is participating in unpaid marketing research. If you are buying Google Apps as part of a service, you are paying to participate in market research.

As a closing thought, I'd like to hear the conversation that ensued if a person walked into the head of school's/principal's office and said the following:

"I'd like to enroll all of our Middle School students in an unpaid marketing research program. They'll never know it's going on, and every facet of their online collaboration will be tracked as part of the study. Oh, and it comes with email."