The crux of his justification for what he does is that, he argues, people wouldn't want to pay a monthly fee for services like youtube bundled with complete respect for their privacy.

First, users do not currently have that choice. Sure, you can pay for some things (e.g. youtube premium), but it does nothing for your privacy. If you buy youtube premium you'll very likely see more ads for youtube premium (if you're not already blocking ads).

Second, The real benefit of ads is that it lets small sites that might get a single one-time visit from a user monetize that visit. A blog with a trending post is not going to be able to sell micro-subscriptions to one-time users, but they can get some ad revenue. The only current alternative here is begging for donations. That takes some effort and can piss off readers.

Ironically, although Kaufman mentions that micropayments are hard, Google is one of the few companies currently situated to implement them in a way that would actually improve user privacy. e.g. If a user paid a "Premium Internet" monthly fee, Google Ads could have a flag that turns it's data collection/sharing off and replaces it with micropayments to any site that user visits that are running Google Ads.

Of course, it does seem a little bit like a mafia protection racket for a company devoted to invading user privacy and selling their data to turn around and offer to stop doing that if paid by users!