Unfortunately, the way ads work, the people who pay to avoid ads are inevitably the ones worth advertising to. The Nash equilibrium is that every user sees ads.
If the LTV of a "good" user (e.g. user who buys things from ads) is X, you price the non-ad tier at X + Y. Y is the premium you pay for not wanting to see ads.
So you're right, but also wrong, in that you can extract EVEN MORE money from the user you were talking about through a non-ad tier.
Companies (Meta, Google, etc) get better at advertising -> LTV goes up -> non-ad tier goes up
That sounds off to me. I would think that the people who pay to avoid ads are very likely to jump to ad blockers if the ad-free subscription ceases to exist. Not to mention that they’re going to be very unlikely to convert on advertising.
The paid service would of course have to offer something else other than “no ads” if they started showing ads in it
The type of people who have already indicated that they have disposable income, and are willing to pay for a service, are more attractive to advertisers than people who are known to have opted for a worse experience for free
