Who says it's about effectiveness of the ad? It might just be effectiveness of getting money from the advertisers. More data means you can do more hand-waving to say that this ad will be the one that really really reaches people this time.
Unethical behavior does not scale in business, no matter how much your calculations rationalize it. In the end people just go away from sleazy businesses. GM and Ford might tell you a story about it and millions of others short term profit oriented businesses also.
Theres only so much bullshit you can pile up before your reputation catches on to you.
Why do people buy Coca Cola? Is it because of the tremendously expensive advertisements they put out or is it because the stuff is ubiquitous, tastes fairly good and is usually not surrounded by a lot of competing products at the places where it's sold?
Don't believe me? What about if you're in a restaurant that sells only Pepsi. Do you leave the restaurant in search of another that sells Coca-Cola? Most people probably don't, thereby proving that all the so-called "positive emotions" advertisements instill in consumers do absolutely nothing when the time comes to make purchase. Theoretically, yes, in a situation where you can choose either Pepsi or Coca-Cola for (roughly) the same price, Coca-Cola's advertising campain may have an effect, but such situations are exceedingly rare. In most purchasing decisions there are variables that have much more significance than the advertising history of the products.
So ads are, probably, not effective. And despite this fact, there has been an industry selling them for over a century and that industry has been getting richer and richer, thereby proving that you can perfectly well build a business on scamming people and keeping it up indefinitely. You do, however, have to keep playing around with some superficial parameters of your business model to keep it convincing. Which is exactly what Google is doing here.
(btw, I use - and love - Google's services, but never in my life have I clicked one of their ads or even looked at one for more than a split second)
And its obvious that Coca-Cola's marketing has been waaay better than Pepsi's. And also I believe that Pepsi is quite comfortable in its #2 position. As is Burger King in its own.
Don't forget, that second biggest player in a huge market is usually still a friggin big behemoth. And that for Pepsi and BK being #2 is a core business strategy. Less upside, but also less downside. These companies basically use their bigger competitors as a hedge against market change.
Marketing in general, I agree, has some non-bullshit aspects to it. Not many, though.
But certainly the marketing that causes Coca Cola to be sold in way, way more places than Pepsi has been very effective.
That's why we skip ads in my house, they are just too hot to handle.
One of the reasons Google's advertising programs are so successful is that they are measurable. A site can compute return on investment and know that for every $X spent on Google ad clicks they are generating $Y in sales.
The retailers I'm talking about may not be representative, however: they already had a strong market presence and strong brand recognition before they went online. Maybe there are businesses that have started from scratch online that did see significant revenue from adwords, but I doubt it.
For businesses that can best exploit Adwords targeting, it can be breathtakingly effective. I've dealt with specialist contractors who saw 25000% ROI on their Adwords spend. Search terms like "loan consolidation" and "car insurance" cost tens of dollars per click and are absolutely worth that much.
A lot of sales guys sell by telling stories, not necessarily by persuading metrics, and all the contextual data makes for GREAT stories.