In early October, Yahoo’s Tom Coates presented Fire Eagle, a geographic service now in alpha testing that will provide data to location-based internet applications.

As Coates explained, there are two sides to any “geo” service. The first is to know where you are, and the second is to do something useful with that information. Fire Eagle aims to solve the inherent difficulties of knowing a person’s location by using multiple techniques, including manual input. In an increasingly wireless world, the problem is solving itself.

“An application on my mobile phone could be uploading my cell ID to Fire Eagle every 10 minutes,” said Coates. “We already have applications that do this. The same application can attach itself to a GPS unit.”

The next question is how this data can be used. Fire Eagle will publish an open API to make it available to any application for which you give consent. “If you know where someone is, there is an almost grotesque amount of contextual information you can provide that person: friends; local traffic; TV stations; weather forecasts; air quality; exchange rates; local laws, such as speed limits; and nearby points of interest,” said Coates. You could create a location-sensitive home page, showing nearby restaurants, shops, taxis, or financial services.

Another service that is attracting attention is Dopplr, a social network for frequent travellers that makes it easier to link with contacts who happen to be nearby.

There are obvious possibilities for advertisers. It is easy to imagine social networking sites, such as Facebook or LinkedIn, building their own equivalents to Fire Eagle, or perhaps using the service. If you bring together location with Facebook’s concept of the “social graph”, you have a more powerful platform for applications that build on our business and personal relationships. The win for the service providers is the opportunity for contextual advertising. It is also a way to hook us more deeply to our identities on their platforms.

It sounds great, but what about privacy? How do you take advantage of what is now possible without becoming more vulnerable to identity theft or other crimes? There is a simple principle to observe, articulated by Microsoft’s Kim Cameron as the second of his “laws of identity,” and it is called minimal disclosure. “The solution which discloses the least amount of identifying information and best limits its use is the most stable long-term solution” he writes. Fire Eagle is exciting but thoroughly spooky, and I will be more impressed if Yahoo can convincingly show how the principle of minimal disclosure will be observed.