I think there is a fundamental problem with an ad-subsidized service. Even ignoring the privacy issues inherent to the way modern advertising works in practice (which you probably shouldn’t ignore), the mere presence of an advertiser as a third party whose interests the service provider must consider creates malign incentives.
I also think providing a service for free is fundamentally anti-competitive. It’s like the ultimate form of dumping. And there are many studies showing that people are irrational about zero-cost goods, so it’s even harder to compete against than might be expected.
