How can this be used for more targeted ads you ask? Quite simple really. If they host the content they have every right to scan the content. Lets take images for example, we know they have the capability of doing a full image search. They scan their hosted images add tags to them then every time a visitor goes to your site Google will record how many page views you get/record the client IP. This IP can be later used to connect to a Google account, thus providing more targeted ads in your subsequent searches. We all have to look at the big picture. I can only see Google's stocks rising.
"Why should we subsidize intellectual curiosity?" -Ronald Reagan