Other startup got there before me. Stop or continue?

I wrote a blog post about this a few weeks ago: http://blog.opportunitycloud.com/2009/12/21/stealth-disease-...

Summary: "The cure for the First Mover Paranoia is to not view competitors as impassable roadblocks but as a verification that the idea actually works and has a market. That is in fact great news! Now the challenge becomes to find holes in the existing market (geographic, pricing, quality etc.) or to improve on what the competitor is doing."

If there is no competition, there is no market. So go for it.

Even if you never get a single user (doubtful), following an idea through to completion is valuable experience. And as noted in other comments, you gain cred.

Push on! ...Keep an eye on the other startup and modify your app. Differentiate your app to leverage their weaknesses and your strengths!

I would say keep going. But take a close look at their app. Surely there are differences between yours and theirs, or at least in the ideas you have for yours. Competition can be good and this should not be viewed as a roadblock to developing your app. As Erik points out in his comment, you should look for the differences and how you can fill voids in the market for this app. Does your app appeal to a different demographic, market, is the pricing better, is the overall quality better, etc...? Capitalize on your competition's weaknesses. You obviously have long term plans for your app, whereas your competition may have just thrown it together and have no plans to upgrade or just minimal plans to upgrade. They may be just testing the market with this particular app. Capitalize on their market research and build a better product. Set up Google Alerts for the app name to keep track of what is going on with their product, but DO NOT let yourself get distracted by any chatter at the same time. Use that chatter though to build the better app.