Your e-reader knows how long it took you to finish The Hunger Games and where you stopped reading Wolf Hall. Publishers are thrilled with the new data – but what does it mean for the rest of us?

Big Brother, wrote George Orwell in Nineteen Eighty-Four, is watching you. Would Orwell have been amused or disturbed by the development that Big Brother now knows exactly how long it takes readers to finish his novel, which parts they might have highlighted, and what they went on to pick up next?

Because your ebook, as a recent article in the Wall Street Journal put it, is now reading you right back. Your e-reader knows how long it took you to finish A Game of Thrones, where you stopped reading Wolf Hall, how many pages of Fifty Shades of Grey you read an hour. It knows what you've highlighted or bookmarked: a passage from The Hunger Games trilogy, "Because sometimes things happen to people and they're not equipped to deal with them", is the most highlighted of all time on Amazon's Kindle, marked down by 17,784 users. As the ebook market continues to mushroom, reaching £92m in the UK last year, this data is becoming significant enough for publishers – who until now have only known how many copies of a book they sell, not how that book is actually read – to take an interest.

"With digital content we have the ability all of a sudden to glean new insights into our customers," says Todd Humphrey, Kobo's executive vice president of business development. "How often do they pick up and engage with a book? What's the average time when they start to read? How many pages do they read an hour? How long does it take to read a book? And through bookmarking, people tell us where they stop. If we were to dive into that reader space, we could see they picked up a book, read the first five pages in five hours, then never picked up and engaged with the book again. What does that say, if 90% of readers stop after chapter five? It certainly provides insight for the publisher and the author."

Kobo has found that books such as The Hunger Games trilogy and Fifty Shades of Grey are typically read at high speed, with the reader quickly moving on to the next book in the series. "There are other books where people pick them up and engage a little bit, read for 15 to 20 minutes," says Humphrey, and this "dip in and out" style of reading is more likely to be of non-fiction.

Humphrey says Kobo is just starting conversations with publishers about sharing its data. "Publishers are asking, 'What are people engaging with, and how are they engaging?'" he says. "We are just starting to engage in these conversations. It's one area in which we have an ability to assist our partners, ie telling them that at chapter five in book X, Y or Z, people tend to fall off."

Small American press Coliloquy, which calls itself a digital publisher of active fiction, is one organisation that is keen to make the most of these new insights. Its ebooks offer a "choose your own adventure" format, allowing readers to choose where their heroes and heroines end up, vote for their choices or personalise content, with their decisions feeding through to influence future storylines.

"Some days you're just really tired of a stupid heroine who makes the wrong choices – so you want her to make the right one tonight," says co-founder and chief executive Lisa Rutherford. So in Tawna Fenske's romantic comedy Getting Dumped, the reader gets to decide which of three men the heroine JJ calls. "You get to read different love scenes depending on who she chooses," says Rutherford. "Then Tawna can see the aggregated, anonymous data, and use it to see which character should play a major role in the next book in the series. None of us particularly cared for her character Daniel, but he was chosen by an enormous amount of readers, which really made her think about him differently going forwards. You can't ignore a third of your readers."

Another of Rutherford's authors discovered that her readers were only bothering to follow one pathway: often Coliloquy's readers will go back and read every single storyline provided for the characters. "She wanted people to go back and read more, so she made the choice points much more polarising," says Rutherford.

Her authors, she says, love the experience, and Coliloquy is now being contacted by other publishers interested in the raw data into reading habits that it has collected. "I would say the connectivity has always been there, it's just the feedback loop was imperfect before, meaning that the author wrote something and put it out there, and then wondered if people liked it and embraced their characters," Rutherford says.

"It's absolutely true that there is practically no market research done in terms of readers," says the Carnegie medal-winning British children's author Melvin Burgess. "I'd be fascinated to see how people read my books, who's reading them, when they're reading them."

But there "is a danger", says Burgess, that "you just start responding all the time" to what readers want. "Storytelling isn't interactive, really – you are taking the lead. So I'd love to know [how people are reading my books], but I wouldn't necessarily take any account of it."

Award-winning author China Miéville feels similarly. "I hope it wouldn't change how I wrote, but conversely I do wonder if getting specifically worked up about this is simply a kind of neophobia, because if it did change how you wrote, wouldn't it just be a new variant of what authors have done for centuries, which is writing to a market?" he says. "In other words, that writing to algorithm, while I'm certainly no fan, is just writing to what one believes readers want – no more or less infra dig than writing in response to demands from the marketing department, or in response to one's analysis on perusing the bestseller list, or trying to second-guess what makes a best seller. A bit more micro-level in its analysis, but not qualitatively 'worse' or 'better'."

The "one very different thing" here, says Miéville, is reader privacy, which he calls "a real issue". Burgess agrees. "I'd love to know what my readers are up to but I don't like the way social media do it all behind your back," he says.

It's a concern shared by others, even though the gathered data is aggregated and anonymous. "E-reader technology presents significant new threats to reader privacy. E-readers possess the ability to report back substantial information about their users' reading habits and locations to the corporations that sell them. And yet none of the major e-reader manufacturers have explained to consumers in clear, unequivocal language what data is being collected about them and why," says the Electronic Frontier Foundation, which has collated a guide to the privacy policies of certain e-readers.

The major players are certainly very conscious of the privacy issue. "Things like battery life and download speeds are collected in order to monitor device performance and continually improve the customer experience – we treat all of our customer data in accordance with our privacy policy," said Amazon.co.uk in a statement.

"We are just starting out on this and we want to be cautious on privacy," says Humphrey at Kobo. "We want to understand how people are engaging in the content, but not to cross the line where we are sharing information about their reading habits which they wouldn't approve of. So we are looking in bulk – at a particular book or genre – and feeding that back to publishers."

A lot of Kobo's experiences, such as the ability to share passages and comments on books with Facebook and Twitter, were requested by readers, says Humphrey. "Most people are keen to do it – they recognise their information, their likes and dislikes, are known anyway," he says. "It seems to be something people continue to ask for and welcome."

And if a reader doesn't want to share details of how they read with Kobo, they are able to go offline and refrain from note-taking. "We get data when people are using the server and have been reading a certain book. If someone wants to read a book, we will know if they purchased it. If they don't bookmark, and they're not online when they're reading, and they're not taking notes, we're not going to glean much information except for the purchase itself," Humphrey says. "We do have people tell us that what they love about Kobo is that they can sit on the subway and no one knows what they're reading – it does provide some element of privacy. But at the same time we will know they purchased the book. You don't have to post passages, either – we are providing people with the ability to share. If someone just wants to be a customer who buys a book, they can."

Tim Coates, founder of new online ebook store Bilbary, which has launched in the US and will make its debut in the UK later this summer, is adamant that individual data should never be shared."It would be absolutely dreadful. What people read is so private, and they have a total right to their privacy. That is rule number one and we would never ever tell anybody what anybody is reading," he says. "In terms of what we share with publishers, it's always aggregated, [for example] that a lot of students in southern Californian universities are using this book, as opposed to this one... Publishers find it useful, absolutely."

Knowing which passages prompt a book to be thrown aside, which books are read at high speed and which are dipped in and out of is likely to be even more useful, and Humphrey believes this knowledge could eventually affect what's published.

"You can understand what books are selling, where in the world, how fast people are reading them, how long it takes them to finish, where they accelerate or decelerate through a book – all of that at the end provides the publisher with pretty interesting insights to work with the author, on the style of the book and the story, and from a publishing perspective how to market based on where it is selling. At the end of the day, it does allow publishers more information than they would have if they just put the book on a shelf," he says. "It is going to be interesting to watch how it evolves over time. It is more power to the people who are essentially telling publishers and authors what it is they want to read."

Back to Orwell. Nineteen Eighty-Four, says Amazon, is the 608th most-highlighted book it sells. "'Who controls the past,' ran the Party slogan, 'controls the future: who controls the present controls the past'" has been marked by 349 Kindle users, while "If you want a picture of the future, imagine a boot stamping on a human face – for ever" has been highlighted by 195. What would George have said?