YouTube serves probably dozens of formats/bitrates, and has spent years tweaking how it ingests, transcodes, and serves videos. Adding in-stream ads might have been a bigger engineering task in that environment. Depending on the percentage of users/viewers avoiding ads, it might not have been worth the return.
Yeah, I’m not sure my reaction to them adding Pandas as a playable race (in the Warcraft III expansion) was that they were “really badass” as OP seemed to think.