How does the 'Observation' setting for audience targeting differ fundamentally from the 'Targeting' setting?

The fundamental difference between the 'Observation' and 'Targeting' settings for audience targeting in Microsoft Ads lies in whether the selected audience segment restricts or simply informs ad delivery. When the 'Targeting' setting is selected for an audience, the campaign will *onlyshow ads to users who are members of that specific audience segment. This effectively narrows the campaign's reach to only those users. Conversely, when the 'Observation' setting is used, the campaign's reach remains determined by the other targeting criteria already in place (keywords, location, etc.). The 'Observation' setting does NOT restrict who sees the ads. Instead, it allows you to *monitorthe performance of users who also belong to the observed audience segment. This provides valuable data about how that audience segment behaves in relation to your ads, which can then be used to inform bid adjustments. For instance, if your campaign targets 'dog food' and you 'Observe' an 'affinity audience: dog owners,' your ads will still show to anyone searching for 'dog food.' However, you'll also gather data about how the 'dog owners' audience interacts with your ads, and you can then increase bids for that audience if they prove to be higher converters. 'Targeting' restricts reach to the selected audience; 'Observation' gathers data to optimize bidding for users within that audience without restricting reach.