1. The "first mover advantage" is a myth. In most industries, those who we recognize as the "first movers", weren't. They were just the first to achieve sufficient mind/market share. Others have written extensively about this. Google it, if you don't believe me.
2. Contrary to popular belief, competition is good. It establishes to customers and other investors that someone else thinks there is value in the market you are seeking to develop.
3. The competition that you view as "overwhelming" may in fact be a paper tiger. They may falter, you may out execute. Their strengths are also potential weaknesses. They are beholden to investors and employees, which makes them potentially less nimble. You are beholden to no one, and can potentially be more able to respond to new opportunities or uncovered risks.
4. Your respective offerings may end up targeting different segments of the market, and not as direct competitors. You may even end up as partners, either via contract or outright acquisition/merger.
5. If they are successful in carving out a market and generating publicity, other investors/acquirers will be looking for others with similar offerings to invest in/acquire. Even "failed" companies can be profitable to their stakeholders, if they are run smartly.
That being said, it is also important to know that if you are going to fail, fail quickly and move on. You have only one finite resource, and that is time. Don't waste it.
But - I'm going to reemphasize this so as not to end on a "downer" - don't be so fast to concede defeat just because you are faced with a little bit of competition. After all, look at the Friendster-LinkedIn-MySpace-Facebook saga.