The Associated Press (via Yahoo) writes that IP addresses are to be considered as Personal Information according to the man in charge of the EU's group of data privacy regulators.
IP addresses allow companies such as Google or Yahoo to identify the geographical location of a computer and this can be used to provide with more targeted and pertinent advertising and content.
Peter Scharr, intervening at a European Parliament hearing, said that when someone can be identified by an IP address, then it has to be regarded as personal data.
But Google says that the IP address only identifies the location of the computer, not who is using it.
An analogy could be that of your landline phone number which can tell you the exact location of the phone but cannot exactly identify how many people are using it.
Personal data like IP addresses are crucial for marketers and search engines who can narrow down the type of consumer they're targeting - the more data they have, the more valuable it becomes as it gives a sharper, more detailed profile of the individual.
An interesting development is the emergence of tools which not only tie the user to the phone but also provide the service providers with an approximate location of the user.
Apple's iPhone for example uses a triangulation method to generate a pseudo-GPS feature which gives you a rough idea where you could be.