Credibility: It is interesting to talk to normal people about their search behaviour. Many don't notice that the top positions are ads. Some say: "I never click on ads", means: They only click on the left, never (better: seldom) on the right.
As an advertiser I like about adwords: Visits from paid search convert better: Bounce rate is lower, time spent is higher, number of pages visited is higher. One reason for this: Full control over the ad text compared to the random snippet in the SERPS - besides the obvious factor "higher position".
SEO and AdWords Optimization: With the emphasis on quality of the ad and landing pages the same effort has to be put into creating landing pages that are relevant to the keyword used. We found that a good langing page for ads will be ranking high in the SERPS. For each keyword phrase there should be a different landing page and the landing page should look "organic".
Some sites focussed on making money by Adsense, are highly concentrated on one group of keywords for one industry. We place our AdWords on their pages, when the content of the page is relevant to our keywords. The best placements in content adwords have an as good CTR and conversion rate as the search adwords.
Google claims that their main focus is to make searchers happy. If the searchers find what they are looking for, the ad buyers are happy and can afford to finance google. So the effort of google to improve the quality of the search experience (from the perspective of the searcher) is not altruism but a good strategy. If the searchers find good content and good ads, they will make more use of google. If this is manipulation: Let's have more of it!