Search ads are very different from content ads. People click on search ads because they look like search results and they often give the user what they were looking for. There isn't a huge quality difference between search engines, so sticking ads everywhere would likely lead to an exodus of users.

Content ads make money because people see something that catches their eye while reading the content they came to the site for. This requires having several ad spots rather than just a couple at the top of search results. Content is usually unique, so there's a high annoyance bar to reach before you start to drive people away.

Yes, fewer ads make the ads shown more effective. I remember Hulu ads more often than I remember TV ads. (Then again, I watch far more Hulu than TV these days.) The problem with this approach is that advertisers aren't willing to pay enough money to cover the losses from showing fewer ads.

What you and the author are suggesting is a demonstrably unsuccessful strategy for someone who is running a website until you can convince advertisers to pay more money for ads with less competition on the page. I don't think this is impossible.

I agree that users get confused over what is a search result and what is an ad. However Google tries to make it clear which is which and to avoid confusion.

However Google has ads in a lot of places other than search. And makes a lot of money on them. Yet somehow they also haven't turned gmail, youtube, picassa, and maps into banner-fests.