"Pay to have no ads" always seems great from a consumer perspective, but terrible from the ad buyer perspective. The people who would buy google premium are the people ad buyers most want to advertise to.
Widget Salesman: "I'd like to buy some ads for my widgets"
Google: "Cool. Some users won't see them."
Widget Salesman: "Which ones?"
Google: "Only the most-engaged ones with the most money."
On a related note, this is why paid magazines still have ads. The Economist has advertisment, and probably sells ad space at a premium because it's readers have more discretionary spending and engagement.
“Showing an ad” is a bad paradigm. Instead, get to know me. Find out my values and needs. Then, sell to me. Make me feel like you understand my problem and then show me several good options. That’s how you get the users with money to spend.
"Get to know me" is a bad paradigm. I don't want them to know shit about me. But since it's safe to assume that is you're serving content, then someone is consuming it, you can base ads on that content. You know, like TV, radio, and magazines have done the whole time.
I would assume that Google cares more about total profit, from any available source, over some lesser amount of profit from a particular source, such as ad sales.
...
Which implies that they think that continuing to sell ads will make them more total profit than Google Premium, at any price.
Widget Salesman: "I'd like to buy some ads for my widgets"
Google: "Cool. Some users won't see them."
Widget Salesman: "Which ones?"
Google: "Only the most-engaged ones with the most money."
Widget Salesman: "..."