alt Hacker NewsFor typical social media sites, engagement will pretty much always be proportional to both revenue and cost per user. Either revenue > cost, and the site is incentivized to increase engagement, or revenue < cost and the site dies. There is no middle ground where a site gets a healthy revenue that's greater than its costs, but increasing engagement won't increase revenue. The exceptions are niche sites that do things like fixed subscriptions, or cost money to create content but not to consume it (but even in these cases, increasing engagement probably still increases the chance users start/continue to be paid customers).
You assume that subscriptions wouldn’t become more common without targeted ads. It’s certainly possible.
(I’m not sure if it’s even possible to ban targeted ads, haven’t thought much about it. Perhaps there’s a regulation of commerce angle. I do think that businesses could be forced to provide more clarity about the exchange that’s taking place, the value of the data, how the data is used, and so on.)