Google's customers do care about better targeting, and don't give a damn about google's reputation. If google gives them inferior product they'll lose money. But worse , they'll open an opportunity for a competitor.

Google understands that ignoring competitors , even niche ones , can be a long term risk. So they work on controlling all the advertising market. I think that's also the biggest reason behind Android: google makes very little money with it. But it's a great defensive strategy.