Microsoft is adding a new feature to Internet Explorer that will allow users to opt out of being tracked by certain websites.

A new Internet Explorer feature will allow users to opt out of being tracked by certain websites. (iStock)The move comes amid growing demands for more privacy online, and U.S. government moves to introduce "do not track" legislation unless the internet industry does a better job of policing itself.

Data mining has grown into a $25-billion US industry as marketers scramble to better understand what makes individual consumers spend their money, and then design marketing efforts to target them.

In a presentation to the U.S. Congress last week, the Federal Trade Commission's director of consumer protection David Vladeck pointed to a case involving Sears.

The retailer was using tracking software that collected information from shoppers about online purchases, online bank statements, email headers and subject lines, drug prescription records and other sensitive data.

In another case, a company selling software which allowed parents to spy on their children's online activity was selling data that included children's real time online chats to marketers and web developers.

However, critics say Microsoft's opting-out feature has several flaws which will make it ineffective in tackling the full depth of the online tracking problem.

'We do not need a technological arms race.'—John M. Simpson, Consumer Watchdog

It would be up to consumers to load in lists of sites that they do not want to be tracked by. That would require a lot of effort and homework on the part of internet users. The more insidious drawback, according to the group Consumer Watchdog, is that marketers would simply design technological workarounds, and continue tracking.

"We do not need a technological arms race," said John M. Simpson, director of CW's Inside Google project, "A simple 'Do Not Track Me' message sent from a browser that advertisers would be required by law to honour would do that."

Simpson said self-regulation has not worked to protect consumer privacy and his group is urging the U.S. government to proceed with legislation.