As more and more users awaken to the fact that their every step on the net can be traced, browser developers have started to incorporate private browsing modes into their products. Google Chrome has an 'Incognito' mode, Safari has 'Private Browsing,' the latest beta of Internet Explorer 8 features 'InPrivate Browsing,' and, according to an update on the Firefox wiki, Firefox 3.1 will feature a 'Private Browsing Mode.' Of course, these browsers can't hide any of your activity on the net itself, but at least when you are on a shared computer, these privacy modes let you conceal your online activity from fellow users.
According to the discussion on the Mozilla wiki, Firefox's implementation of this privacy mode will prevent Firefox from writing any information to the cache, download manager, history manager, or login manager. It will also clear all cookies and will not prompt you to save any passwords during your session.
Mozilla's implementation is pretty much the same as Microsoft's, Apple's, and Google's. The idea behind these incognito modes is simply to prevent anybody who has access to your local machine to track back your activity in the browser (and I'm sure you can come up with your own rationalization for why you would want to do that - Google's trenchcoat wearing mascot seems to speak for itself...).
So far, it looks as if IE8 users will get the most granular controls over their privacy settings. IE8 will also allow third parties to provide InPrivate Subscriptions that will then automatically make certain sites run in this private mode.

However, as Google points out, if you log into a Google Account and Google's Web History tracking is activated, your online activity will still be recorded there. Also, your ISP still records all of your activity and so do many of the online advertising networks.
Having an incognito mode in your browser is great if you just want to hide some of your online activity at home (I'm sure you can come up with your own reasons why you would want to do that). These modes, however, don't really help you if you really want to be anonymous on the net. After all, we just learned that Google's promise to anonymize your data after 18 months is a bit of a joke.
In case, you really want to be anonymous online, you have to dig a bit deeper and accept quite a few hassles on the way. First of all, after going into privacy mode in your browser, you would have to ban every piece of software (like the toolbar or Chrome) that phones home from your machine, no matter who the developer is.
After that, you have to configure your machine to route your traffic through a set of proxies (like the Tor Onion Router) so that the server on the receiving end can't identify you. Sadly, this will also slow down your browsing speed considerably, as your data has to bounce from one proxy to another before it gets to your machine.
The problem with all of this is that it adds a multiple layers of inconvenience over the browsing experience that few users are willing to accept unless they have very good reasons to remain anonymous online. As always, we are faced with the trade-off between privacy and convenience and, for most users, convenience tends to be more important than privacy.
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It was hilarious at the recent Office 2.0 conference (the day after chrome launched). The enterprise lead from Google was there talking about incognito mode and his use case was for someone searching for athlete's foot remedies!
Let's just get it out in the open - 99.99% of the time that incognito (and other private browsing options) are used, it'll be to cover up porn surfing
Let's just get over it.....
But it sets a hold on new cookies being set - so it could hamper ad network and some other tracking types by keeping them from setting new cookies. The question is - does it also block access from updating cookies?
Really all it means is that you just keep seeing the same ads over and over even more often because no one can check the frequency with which you see a particular ad.
Not just ads, but it ruins our web stats too. How do you think services like Google Analytics track return visitors? If they can't set and persist cookies, a lot of the web's infrastructure stops working right... we go back to the stateless web of the mid 90s.
@2
But, if you never read the ads who cares whether they are the same ones or not?
@3
Who is "our"? Anyway, it may screw up peoples' efforts to maximize monetarization of their sites but I cannot quite see why the web infrastructure should collapse.
I like the idea of "incognito" but why is it not available as a default? Also, has anyone else noticed that it still stores Google cookies?
I generally surf with cookies turned off, no history and "clear all data on close" (Firefox) and I honestly cannot say it makes much difference to my experience of the WWW.
What I dislike about Chrome (apart from looking horrible)is the lack of default control over cookies, history, etc. as in FF. It does not even block 3rd party cookies fully and you have to manually delete everything on closing.
Surfing in Incognito mode does not disallow tracking for understaning traffic patterns. What is hampered though is that you do not have a good gauge of returning traffic. In my opinion though, quality sites don't stand to lose too much by people selecting incognito mode. In my opinion, only a maximum 2-3% of the traffic will be skewed, which is quite alright for non e-commerce sites.
Surfing in Incognito mode does not disallow tracking for understanding traffic patterns. What is hampered though is that you do not have a good gauge of returning traffic. In my opinion though, quality sites don't stand to lose too much by people selecting incognito mode. Incognito is selected only for real private browsing, not generic browsing!
In my opinion, only a maximum 2-3% of the traffic will be skewed, which is quite alright for non e-commerce sites.