Google's ( GOOG) WiFi ambitions may generate a few hits on the privacy front.

Inside the tech titan's wireless Internet access strategy is a bit of free security software called Google Secure Access that funnels all user traffic to a Google server. This encryption service, which is optional, allows users to send sensitive data like online banking info or work files without worrying about eavesdroppers.

Well, almost.

In exchange for providing a free ride on the Net and pro bono security, Google can work its logarithmic magic and glean not only the topics that seem to interest you, but your general location.

If this approach is successful, the already targeted advertising that appears in the margins of your Google pages will put a bull's-eye on you for advertisers hawking goods and services in the vicinity.

Google says the primary reason for branching into wireless Internet access is to allow the company to explore opportunities in location-based services.

The Mountain View, Calif., tech shop is one of the bidders vying for a contract to provide free wireless Net access to the city of San Francisco. Google already provides free WiFi service in San Francisco's Union Square and is a sponsor of free wireless service in New York's Bryant Park.

The potential problem is that for Google's location-based services to work, the company needs to know where you are and what you are interested in. And to get that info, the company will track some of your Web page viewing and roughly pinpoint your location.

Industry observers say there's nothing really new here. All network operators keep logs of users activities. The big difference in this case is that Google actually uses some of the info to tailor advertising, say analysts. Ads, by the way, happen to represent 98% of the company's revenue, says Mike Smith, an analyst with Stratecast Partners. Google shares rose $3.17 to $319.73 Monday.

"From a privacy standpoint, I don't think it's a huge issue. But targeting ads makes it more visible to the user," says ABI Research analyst Sam Lucero. "Google is going to slap them right in the face with it. And that might be a public relations problem."

Google's electronic snooping, as minimal as it may be, has raised the ire of critics in the past.

When Google launched Gmail, its free email service, privacy advocates raised a stink over the company's practice of virtually looking over the reader's shoulder to target ads based on the topics of the conversations.

A Google representative said the company "really cares about privacy, and we do everything we can to protect privacy."

Swapping a little personal information for free wireless access doesn't sound like an onerous cost, say some observers.

"If Google is responsible and they don't get too big brotherish about looking at my surfing habits, I think it is acceptable for them to make use of that data to offset the cost of an otherwise expensive-to-operate security service," says Marcos Lara, founder of the Public Internet Project, the group that runs the Bryant Park WiFi service.

Google's massive popularity and deep pockets have helped create a great deal of speculation about what industries it has targeted for plundering. A joint news conference with Sun Microsystems ( SUNW) Monday is expected to create a software threat to Microsoft ( MSFT). And Google's instant messenger service, GoogleTalk , is expected to one day rival telcos in the calling business.

Wherever Google goes -- or is rumored to go -- hyperbole tends follows.

But in wireless Internet access, a Google rep says the company has no designs to extend its San Francisco ambitions outside city lines -- let alone to unwire the world.

So far, however, the company seems to like what it has seen in taking the advertisers closer to Google users.

"Google is gingerly dipping its toe into this WiFi thing seeing what results and the lessons learned will determine the next step," says ABI's Lucero. "Going forward with San Francisco means they've seen that there's something there."