The problem is that 1. is better known as "Search + ads".
To put it differently, how does GSearch decide what and whether to show ads for a given search? Well, they could sell keywords by auction to parties interested in placing ads, and then use clicks and other user feedback to decide how relevant they are (that is, how much UX is lost by placing ads nobody clicks on top of results that users want). Whether they're selling to GAd or directly to merchants, or to SEM companies that act as middlemen in the current world does not seem like the important issue.
You could in theory separate search engine ads from site ads, but I don't think anyone is really complaining about the fact that Google owns so much of that business.
To put it differently, how does GSearch decide what and whether to show ads for a given search? Well, they could sell keywords by auction to parties interested in placing ads, and then use clicks and other user feedback to decide how relevant they are (that is, how much UX is lost by placing ads nobody clicks on top of results that users want). Whether they're selling to GAd or directly to merchants, or to SEM companies that act as middlemen in the current world does not seem like the important issue.
You could in theory separate search engine ads from site ads, but I don't think anyone is really complaining about the fact that Google owns so much of that business.