Alibaba set a new high water mark for an initial public offering with its $165 billion valuation in September when the company went public. After only two hours of trading the value of the company rocketed to $220 billion. Facebook went public in 2012 and is now valued at over $200 billion. Google has a market value of $390 billion, LinkedIn, $26 billion and Twitter, $31 billion.

Combined, these companies alone are worth nearly a trillion dollars. Most of us use the services of at least some of these companies: we follow a columnist on Twitter, we “Google” a topic to find more information, we access our Gmail accounts or keep up with family and friends on Facebook. And astoundingly, all of these services are free. The primary value of these companies is not derived from the services they provide but from the information they gather from their users. It is this information that commands a tremendous amount of value to the companies themselves and to the advertisers to whom they sell it.

Advertising is a huge industry. According to eMarketer, total media spending on advertisements worldwide will be almost $550 billion in 2014. This estimate includes the money that is being spent on traditional advertising outlets such as television and radio commercials, and print advertisements in magazines. Spending on digital advertising, however, is becoming an increasingly important piece of this market. The same eMarketer report estimates that digital ad spending will surpass 25% of the overall market for the first time this year.

One can argue that spending on digital advertising in much more effective because of the information that is being collected by companies like Google. A Google search can gather demographic information about the user, what the search was for, what geography was searched from, and how the searcher responded to the results. Contrast this with the data that has historically been used by rating agencies, such as Nielsen Media for example, to estimate how many viewers were watching a particular TV program. There was no demographic information available for a specific viewer (just the household), measurement was after the fact (not real-time) and there was very little data about how an individual user responded to information.

Today, key words in interactions over email accounts provided by Gmail or Yahoo, a search for a specific product type and even transactions for items such as airline tickets, are being collected and used by digital advertisers to create advertising customized for a specific user. The effectiveness of those ads can be measured and adjusted in real time.

Information is being collected on each of us every day as we go about our digital lives: what apps we use on our mobile phones, what content we stream through our Amazon Prime subscription and even our home thermostat settings. The high valuation of the companies positioned to collect this information is a reflection of the plethora of ways in which it can be used, many of which are yet to be invented.

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