Does it need to be profitable? It seems to me that if it siphons money off from competitors, that's already enough to hurt the competitors relative to itself. In fact not only does the advertising not need to be profitable, even the sales of X do not need to be profitable, for the competitors to be harmed... dumping would be the extreme example of that.
You are talking about a different aspect of the scenario, where the company is reaping profits from advertising. Sure, that's kind of beside the point though. Which is why it's important to recognize that the harm happens even without the advertising being profitable.
If the service isn't profitable, then you are subsidizing the cost of a service that your competitors need. You aren't benefiting from the fact that your competitors are spending money. They would have had to spent money anyway.
Its not really siphoning money off, tho. It is an exchange of money for services rendered.
From what I saw in comments and the (paywalled) article, the problem is that Google isn't siphoning money. They're keeping the ad-space for themselves.
You are talking about a different aspect of the scenario, where the company is reaping profits from advertising. Sure, that's kind of beside the point though. Which is why it's important to recognize that the harm happens even without the advertising being profitable.