I see several advantages to this ad supported Gamepass tier:
1. It's 1st party only. This allows them to put Gamepass onto Steam if they want, as it won't be seen as costing any 3rd party devs Steam sales on PC, only Xbox themselves.
2. It's an incredibly cheap entry point into the Xbox ecosystem, for just $34 a year you get Gold status and you get to play all 1st party and presumably all 2nd party exclusives 6 months after they launch.
3. Seeing Xbox willing to take a hit on their own 1st party games, may show hesitant 3rd parties just how valuable a Gamepass release can be for them, which could make getting 3rd party Gamepass deals for the higher tiers easier and cheaper. It could also lower subs to the higher tiers somewhat, a smaller sub base for the higher tiers would be seen by hesitant 3rd party devs/pubs as cannibalizing less of their sales if they make a Gamepass deal.
4. It reads like just a single ad or a few short ads each time you start up a game, no ad interruptions while actually playing. I think most people could handle even a 1 minute ad break each time they startup a new game, and if it's a single ad only it could be a 15 or 30 second ad.
5. This could be seen by regulators as a move to make Xbox's ecosystem more open and less competitive, with Xbox making the IP's of acquisitions Xbox ecosystems exclusive seen as less damaging to competitors. If a Sony or Nintendo owner can access this Gamepass tier via cloud, they don't even need to buy an Xbox and can play every exclusive Xbox game for a mere $34 a year. Even if it's not cloud enabled, they can still buy a cheap Series S (even cheaper later this gen once it reaches that eventual $200 mark) and play Xbox exclusives cheaply.
On the downside however, Xbox is definitely going to take a big 1st party revenue hit if they go through with it, only $34 a year and you can play all 1st party and probably 2nd party exclusives, between the two Xbox will eventually have over 8 1st and 2nd party releases per year as large as they have grown. So basically for the price of buying a single AAA Xbox exclusive on sale 6 months after it has released, you can play all 8+ exclusives per year instead, plus all earlier exclusives. The ad revenue will partially offset this loss, but if it's just a single ad at startup or a handful of ads at startup, ad revenue will be relatively minimal. However, there is a chance that some subscribers to this tier will buy the exclusives that interest them the most at full price at launch instead of waiting 6 months, and only use this Gamepass tier to play the Xbox exclusives they find less interesting.
