I have said for a long time that Privacy is Google’s Achilles heel. They should try to get in front of the problem or else they will keep playing defense just like Microsoft has been doing with security for so long. Of course, the issue is not as black and white, but Privacy is a sensitive issue, esp. in this day and age.
First and foremost, one has to realize that one size doesn’t fit all. User population can be easily buckted into 10-100 segments with varying degree of privacy needs and expectations. The problem has been, companies have designed the generic rule-set for the entire population. Second, user’s should be given control of their own information. If i want to delete everything that Google has on me, I should be able to do that, if i just want to anonymize my history, so be it. As John Battelle posits in this post “Just Asking”, people are starting to freak out. (Why would corporations store their sensitive data, even on Google is beyond me). But if users have better control over the information, people will be willing and able.