I’ve never understood why they haven’t just provided a method of doing this for all their customers. Like a Google Ad service that meshes together everything on the page with the ads server side, so it’s harder to target them client side.

The value that Google has always provided as an ad platform is that they're targeted ads. You can target estimated age, geographic location, gender, estimated income. You can target your ads so narrowly that only a single person ever gets them even.

To bake ads into the actual content stream they have to expend compute editing and re-rendering the video for as many times as they have ads that they intend to run on those videos. They can do it once with once batch of ads but then it's only as targeted as who clicks on that video. Realistically they'll want to do it 5x, 10x or more per video (and store every copie of the video, unless there's some tech to store it as segments and seamlessly stitch then together as a single stream) to continue targeting the ads which gets very expensive fast