Would you prefer a free service that uses advertising based on:
Interests you periodically select during a survey sent out every few months/once a year
Interests the service's organization infers based on your usage of the service?
Imagine the company provides a service similar to Google or Amazon. The survey is a barrier to entry in this situation.
There's another option you didn't mention (well 2 others if you count not using the service at all):
Do it like TV, newspapers, magazines have always done. Serve generic ads, not targeted at a specific person. Sure, they can analyze patterns and assume that a certain type of person watches a certain show or reads a certain mag, and tailor ads that way. But /not/ by knowing personal info about each specific viewer.
@leadore Ding ding ding! We have a winner. This is exactly what DuckDuckGo does
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