How do internet ads work?

In today's world if you are on the internet there is one thing cannot escape, and that is advertisements. Have you ever wondered as to how those ads work and why do things you recently searched for start popping up all around you? How are those ads personalized and why are they a big deal when talking about online privacy?
Let me start off by describing an incident that took place a few weeks ago. One of my friends wanted to buy a laptop for his mom, so he texted me on WhatsApp to get my opinion. We discussed a few models that I knew of (I had not searched them up during that time). Half an hour later I am going through my Instagram feed and what do I see, an ad for the same laptop I was discussing with my friend.
Another example, this happened just a couple days back. I have a Google Pixel and so do the three friends involved in this incident. I was in college and had some free time, so I text my friends if they want to go to the gym and play a little badminton. The agree and after we were done, while on my way back home I get a notification form the google Surveys app, and what do I see as the question?
Google had just asked me what kind of sport do I like to play. Badminton, Football or Volleyball?

What this tells me, or rather affirms my belief that online privacy is a myth. So how do these companies gather the information needed to target you with specific ads?
This type of marketing is known as Targeted Advertising, and there are various ways in which it is done.
Image result for targeted advertising
Search engine marketing:
Every time you search something using Google, YouTube etc,. you see ads that are perfectly related to what you just searched. And that information gets sent to Google AdWords (Google's ad platform) now that the algorithm has your IP and search history any website that you open and if they support Google ads you'll see ads related to what you searched up previously.

Social Media:
Let's say you go to the Facebook marketplace to buy a used iPad. You will search for the product and maybe look at a few and even contact the seller, but you don't buy one. Now every time you go to Facebook or Instagram you will see ads related to iPads.

Geolocation based targeting:
How often have you seen an ad that says, "A new restaurant has opened in your area!", or something similar. When that happens your current location is being used in order to determine what ads to display. 
Let's go back to buying the iPad on Facebook, once you search it you might get ads on Facebook saying that an iPad is available for sale and it's just a few kilometers away from you. The same thing is happening, your location is determining the ads you see.

Now finally moving on to the incidents that started of this rant about internet ads. Your messages, be it android or WhatsApp are end-to-end encrypted, meaning that even if someone manages to get hold of your internet traffic data, all they will see is garbage data that makes no sense. 
I totally agree with the companies that one will be able to read them. But what about the ones who are encrypting them in the first place? And to be clear I have no written proof or properly published research to back up my claims. All I am writing is my experience and my deductions.

I believe even though our messages themselves are not being read, the keywords are being targeted. So in my case, the keywords were the laptop models and names and also the name of the sport Badminton. And since those were the keywords I was shown targeted ads based on them.

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