I really really think this is the way to go. When I'm on programming websites I want ads from cloud providers, and when I'm wood working websites I want ads for belt sanders. I feel like it makes more sense to display ads that match up with the content of the web page anyway, it means the viewer might be in a more receptive mood for that type of product. Not to mention it avoids the entire issue of user privacy and the difficulty of tracking users. It's also how all advertising has been done since the beginning of time, and I don't see why the Internet has to be such a special case.
The internet was a special case simply because it made it possible to do a better job of predicting your interests. At that point it became an arms race because you didn't want to spend on ads that were less effective than your competitor's. If we went back to content-based advertising those ad dollars wouldn't disappear, the distribution would just change.
Very good point indeed. And that is how the publishing industry used to do with segmented magazines. Each publication built their own reader's profile and ad agencies would chose a publication over another based on who they would like to target. That is a much more ethical approach, in my opinion.
This still happens with online ads, but supply quality matters. Location of an ad, quality of the domain (ESPN is very good value). But roughly 100 junk auctions come in (no bidder) for every ok auction (single bid reduces to floor) and just a tenth of that represents a good location (bids drive the price above the floor). So yes, people still hit up espn's college football pages with truck ads and the Washington post got targeted for ads by the Bahraini embassy trying to drum up support during their spat with Saudi Arabia.