The online habits of most people who use the world's dominant Web browser are an open book to advertisers. That wasn't the plan at first.In early 2008, Microsoft Corp.'s product planners for the Internet Explorer 8.0 browser intended to give users a simple, effective way to avoid being tracked online. They wanted to design the software to automatically thwart common tracking tools, unless a user deliberately switched to settings affording less privacy.

That triggered heated debate inside Microsoft. As the leading maker of Web browsers, the gateway software to the Internet, Microsoft must balance conflicting interests: helping people surf the Web with its browser to keep their mouse clicks private, and helping advertisers who want to see those clicks.In the end, the product planners lost a key part of the debate.

The winners: executives who argued that giving automatic privacy to consumers would make it tougher for Microsoft to profit from selling online ads. Microsoft built its browser so that users must deliberately turn on privacy settings every time they start up the software.

Microsoft's original privacy plans for the new Explorer were "industry-leading" and technically superior to privacy features in earlier browsers, says Simon Davies, a privacy-rights advocate in the U.K. whom Microsoft consulted while forming its browser privacy plans. Most users of the final product aren't even aware its privacy settings are available, he says. "That's where the disappointment lies."

Microsoft General Counsel Brad Smith says that in developing the new browsers, the company tried to "synthesize" both points of view about privacy "in a way that advanced both the privacy interests of consumers and the critical role advertising plays in content."

Microsoft's decision reveals the economic forces driving the spread of online tracking of individuals. A Wall Street Journal investigation of the practice showed tracking to be pervasive and ever-more intrusive: The 50 most-popular U.S. websites, including four run by Microsoft, installed an average of 64 pieces of tracking technology each onto a test computer.As online advertising grows more sophisticated, companies playing prominent roles in consumers' online experiences have discovered they have access to a valuable trove of information. In addition to Microsoft, such companies include search-engine giant Google Inc., iPhone maker Apple Inc., and Adobe Systems Inc., whose Flash software makes much of the Internet's video, gaming and animation possible. These companies now have a big say in how much information can be collected about individual users.

Many also have big stakes in online advertising. Microsoft bought aQuantive, a Web-ad firm, in 2007 for more than $6 billion, to build a business selling ads online. Google, already a giant in online marketing, in September 2008 launched a Web browser, Chrome, that gives it new insight into Internet users' habits. Apple has launched an ad network, iAds, for its iPhone and iPad. And Adobe last year paid $1.8 billion to buy Omniture, which measures the effectiveness of online ads.

Executives in Microsoft's new ad business were upset when the designers of Internet Explorer hatched the plan to block tracking activity, say people involved in the debate. At a meeting in the spring of 2008, Brian McAndrews, a Microsoft senior vice president who had been chief executive of aQuantive before Microsoft acquired it, complained to the browser planners. Their privacy plan, he argued, would disrupt the selling of Web ads by Microsoft and other companies, these people say.

Mr. McAndrews was taken aback that Explorer planners seemed unwilling to accept input from advertising executives, given that Microsoft had spent $6 billion on a Web-ad firm, according two people who participated in the meeting.