How do keyword spy services like Keywordspy & iSponiage work?

How do keyword spy services like keywordspy & iSponiage work? They claim to know what keywords your competitors use and what their budget is.
My guess they run thousands of searches at search engines like Google using all kinds of keywords, inspect the ads and see if a competitor ad shows up and how often. They do this many times during a day every day.
Is this what they do?

See original post by salama2000