Some advertising networks have been secretly collecting app users personal details over the past year and now have access to millions of smartphones globally, U.S.-based mobile security firm Lookout said.
These unregulated practices are on the rise, Lookout said on Monday as it unveiled the first industry guidelines on how application developers and advertisers could avoid raising consumer angst.
"Aggressive ad networks are much more prevalent than malicious applications. It is the most prevalent mobile privacy issue that exists," Kevin Mahaffey, Lookout's technology chief and co-founder, told Reuters in an interview.
Over 80 million apps have been downloaded which carry a form of invasive ads - used by 5 percent of all free apps on Google's Android platform - which can take data from phones or install software without users' knowledge.
Some more aggressive networks collect users' email addresses or phone numbers without permission, while others install icons to home screens, track users whereabouts or push ads to notification bar.
Mobile devices have so far had limited appeal for writers of viruses and other malicious software, or malware, due to numerous small platforms and limited financial gains. But during the first quarter, the amount of malware on the popular Android platform jumped to 7,000 from 600, according to Intel's security software arm McAfee.
"These guidelines make it clear some practices are out-of-bounds. That's good news for both consumers and responsible businesses," said Jules Polonetsky, co-chair of Future of Privacy Forum, a Washington-based thinktank focusing on responsible data handling practices.
"Many apps are ad-supported, there is nothing wrong with it, but users should know what is their trade-off. People want to have confidence and trust that they're not being compromised while on devices that have access to their most personal information," he said.
Advertising networks work as intermediaries, linking large numbers of advertisers with media publishers.
They have seen a boost especially from a rise of Google's Android platform, where many of the applications, like Angry Birds, are distributed free and funded through changing advertisements.
Ad companies are closely watching the sector as mobile advertising presents an opportunity for new revenue streams. Advertisers are attracted to the sheer size of the audience.
"If you look at the 6 billion eyeballs - there is a potential for a gold rush," said David Gosen, a director at market research firm Nielsen.
But with consumers increasingly conscious of privacy issues, some said aggressive practices could backfire on the $8 billion industry.
"We are in a very early days of mobile advertising and models are very much derived from the web where practices have not been very respectful," said Anne Bezancon, founder and president of Placecast, which provides location-based marketing services but never shares or sells information of its 10 million clients.
"The mobile experience is much more intimate and personal - a phone is an extension of you, not a distant publishing screen. The equivalent is someone whispering in your ear."
(Reporting By Tarmo Virki; Editing by Marguerita Choy and Mike Nesbit)