Part one is "why” is the consumer there to begin with? Are they actively "seeking" out a product? Are they passively exposed to it? Is it a "high-consideration" purchase product? The consumer's mind-set is crucial.
The second factor is what is your product? Do you have a product that is high-cost/high-consideration? Are consumers familiar with your product offerings? Is your product new? Is your product "mass" or "niche" in scope?
I'll get to who it works for and who it doesn't later, but if Google does make the move, there could be a profound effect on the entire industry. Large sites with inventory they cannot fill rely on ad networks for that boost in income. Those sites have to do little work and yet reap the benefits of ad sales armies at the networks.
So what happens when the bread and butter clients of the ad networks have their clients get more precise targeting with their consumers on Google?
Why does targeting even exist?
The targeting options available now for display leave much to be desired. Even on ad networks and large portals with vast amounts of information, you are still supplying them with a demo profile of the target you want to reach. But you have to ask yourself: Why does that target even exist?
Well, it exists because research showed the client that this group of people had a higher propensity to buy their product. All the clients are doing is improving their odds for success by delivering ads that are more likely to reach that sub-group because that helps them to a better, stronger ROI.
But what if you could ignore the whole concept of targeting to begin with? Google SEM display would not be targeting at all, it would replying-to-interest. And that is where the difference lies. You are not targeting anyone. It is the difference between someone who is looking for a pediatrician, notices the sign in your window and knocks on your door (Google Display Search), and you wanting to expand your business and going into a neighborhood with a lot of kids, and thus parents of kids, and driving your car around with a sign on it (Display Ad Targeting).
It will all end up depending on your product and how creative you are. You have to make a split between advertisers who are trying to change consumer perception of a brand or product through communicative messaging, and those who are just trying to serve a consumer need state. There is a fundamental difference between direct response and brand advertising.
So who does this work for?
This process works for brand categories that have many consumers already in the market. For example, if someone types in "Ford Focus," your text ad will serve the consumer very well if you are Ford. But what if you're Toyota? Isn't that the perfect time to tell the consumer why your vehicle beats out the Ford Focus in several categories? This would work for all competitive targeting of that product, but what it would not work for is everything else.
You can get creative and target keywords that are associative keywords to your category, but it’s doubtful that Google would allow that type of leeway for display since it is currently fairly strict when it comes to SEM paid listings. Relevancy to consumer is Google's highest goal.