You are making a huge assumption here, namely that advertising-supported services that cost billions to develop and maintain, and which generate billions in advertising revenue, would still cost billions to develop and maintain if they were not generating billions in advertising revenue. This assumption is in my opinion entirely incorrect.
The underlying reason for those services having both high costs and high revenues is that they have extremely high volume of users. I'm sure something like Duck Duck Go has much lower operational costs, even though it's providing not substantially different service than Google's search engine.
My point is that the cost and revenues are not a function of each other as much as they're both a function of usage. Once you get a high volume of users, it's pretty natural to convert at least a small part of that to advertising revenue, even if doesn't fit well to your platform (cf. Twitter). It takes a principled decision not to dip into that revenue source -- I remember once reading how Jason Calacanis was pissed at Jimmy Wales for not wanting to include ads on Wikipedia.
Compare Twitter with Mastodon Social. Twitter employs 3000 people and it's a hugely complex piece of software. Meanwhile, Mastodon is mostly built by a single guy, and a small volunteer community.
Majority of that complexity is not there to make user experience better. I actively use both platforms, and I find that Mastodon provides a better user experience in pretty much every way. The UI is snappier, it has better features for interacting with others, it doesn't restrict the API, and so on.
The main cost of Twitter comes from building tools to monetize and exploit the users of the platform.
As I recall, the internet behemoths settled on ad revenue when other forms of generating revenue failed for their systems. People were not willing to pay monthly for Facebook nor google search. But maybe that’ll change after people react to the current situation.
Your choices aren't between tracking and subscription, they're between tracking, subscription, and advertisement. You can advertise without tracking (contextually, the original claim of AdWords) and you can sell tracking data to non-advertisers. To say that the economic model of the internet depends on privacy violation is a "the world has to be this bad" argument that just doesn't hold up, especially given the memory of internet advertisements in the time before so much brainpower was funneled in to tracking us.
Except that what we actually have now is "tracking and advertisement" with the former being largely covert, but probably as big, if not bigger as a commercial driver. Watch as loads of the Internet lose their shit over users introducing privacy measures, and very little actually seeming to be done to introduce advertising that doesn't violate privacy.
