My sole time as Venice I puppeted the first two and then switched to just going for the alliances. I ended up using them as production and food boosters for my capitol, aiming trade routes back toward it.
It depends on the City State. I'm not much of a warmongering, so I value militaristic CS less than the others. I'd be more likely to puppet a warmonger.
If there is a resource that I want to guarantee, then puppeting allows me to insure it against buyouts or coups.
On the other hand, if a CS is on the other side of a potential enemy, leave it as an ally. You aren't going to be able to defend or reinforce it and puppets can't build. In my experience a CS can stand its ground fairly well, so as an ally it makes a good distraction rather than becoming just another city that you need to retake. If it does die, you're no better off than if it was a puppet and when you liberate it you gain 60 standing. The world might also think you're a good guy too.