[noodle]

you can do both if your app allows it, by offering a tiered service.

a free plan that restricts functionality and serves ads, and plans that cost money but opens up more of the application and removes (most?) ads.

also worth noting is that google adwords and PPC in general is NOT the be-all-end-all of online ads. you can come up with other options that suit your needs, like a higher quality PPM, referral programs, or special individual sponsorship deals.