You're confusing the manufacturer with the retailer. If someone buys a pair of Nike, Nike's happy. I'm sure they don't mind which retailer sold the pair.
I'm sure the retailer who lost the sale is filled with joy because someone else got the sale and the profit, but the person still bought Nike!
You're correct in saying you can't expect to be the only person out there selling whatever you sell, but it is not unreasonable to expect to be able to communicate privately with your customers without exposing them to a number of your competitors.
Just like you do on the phone, by regular mail, in person and by leaflets/brochures/catalogues.
When a client reaches the stage of entering their email address on a business's site, or contacting the business with an enquiry, they've already gone through the search/see the competitors ads process, and they've made a decision to consider going to or through your business.
The fact that the advertisements are not actually embedded in the email is probably because AdWords uses a spider (program which reads pages to see what's on them) to determine which ads get displayed - and the spiders would simply be denied access to the non-gmail users' email ...
The only way television advertising could be compared would be if tv stations suddenly started doing "picture in picture" of advertisements, showing you the main advertisement + 5 smaller ads running down the side of the screen. I'm sure any tv station game enough to try a stunt like that would find themselves pretty poor, pretty quickly ...
The contract you mention is interesting ... what contract? Businesses need to sign a contract with Google before they email a gmail user? They certainly should. They should be fully informed and aware and consenting to their emails being used to push their competitors ads.
Google should really be auto-responding to every address who emails gmail users making them read and agree before actually allowing email through to the gmail user.
Before you say that's impossible or unfeasible - a very similar process is already done with various anti-spam services.