Why Online Privacy Is a Big Oxymoron

Memo to social networking junkies: In the digital age, there's no such thing as online privacy — especially if you're not paying to remain anonymous to advertisers or other users.

Instagram and Foursquare recently revamped its privacy policies to the ire of consumers. The uproar signals a larger trend: online privacy is becoming a big oxymoron. (Read More: What Instagram's Blunder May Mean for Ad Future.)

Of course there's a natural tension between users and digital products and services trying to make money from their platforms—without charging users fees. A key problem, according to experts, is that Internet users have grown too accustomed to what famed economist Milton Friedman once warned didn't exist: a free lunch.

While users may chafe at what they perceive as unwarranted intrusions into their online data, industry observers said online platforms have the right to use information to their advantage, albeit within clearly defined and posted limits and company policies.

As a result, consumer expectations that websites will altruistically block marketing access to data are unrealistic at best. Turns out free services — for everything from posting mobile photos to location updates — will indeed cost you, in the form of your personal data.

"Free on the Internet almost always means in exchange for your data," said Jules Polonetsky, director and co-chair of the Future of Privacy Forum, a Washington,D.C.-based think tank.

Savvy consumers learn fast and have realized limiting access to their data means they have to stay vigilant on privacy settings.

Facebook and Google's social networking arm, Google Plus, have group functions that allow users to selectively share information, instead of exposing data to "the random world", as Polonetsky euphemistically called social network posts. (Read more: Randi Zuckerberg Also Confused About Facebook Privacy.)

In some cases, web surfers are going a step further and downloading additional software and browsers specifically to block advertiser access to their personal data. AdBlock Plus, which is free touts about 42 million active users, is one example.

Unless users are willing to jump through such hoops, "there isn't much privacy from marketers when your sharing your information online," Polonetsky said. "Users should understand that there's not much online that is free, unless they take extraordinary steps."

In the end, the onus is on users to know where and how their data is disseminated.

"I'm often surprised that people are surprised" by user data policies, said Brad McGee, co-founder of iCrowd, a social network for equity crowdfunding. If you post information, always have a clear idea of how the site or company intends to use your data, he said.