Translate what Google does to the analog world. It might look like this: some guy following you around in every shop, every café you eat. He'll note what you buy, what you talk about, what you don't talk about. He'll read your mail to see what interests you (and your friends!). I hope this will help you answer "the real question".
You can try not using Google services (which is nearly impossible in the first place), but there's no getting away from Google Analytics and countless similar services without installing ad-blockers and browser extensions like Ghostery.
However, quite a few websites have options in their paid plans (Grooveshark comes to mind) where they disable all ads on their website for you. All we need to do is show how important privacy is to us, and to prove that there is indeed a market for paid webapps (regular webapps like Mail, RSS readers, etc)