You can look at it a couple of different ways, but my mindset is more from the "competition validates the market" and "if you don't have any competition, that's a warning sign" school of thought.

Anyway, competition is a fact of life for pretty much every company. If you don't have it today, and your idea is good, you'll have it tomorrow, or next week, or whatever. More than likely, if your idea is really good, you have half a dozen competitors working away in their garages (or wherever) right now, that you've never even heard of.

My take? Keep moving forward. Keep a close eye on what your competitors do, and not just in terms of product features and technical stuff. Read Positioning - The Battle For Your Mind by Al Ries & Jack Trout, and All Marketers are Liars by Seth Godin, and think about what "lie" your competition are telling, (or what position they're trying to grab) and figure out if you can A. grab that position / lie before them, or B. establish a related but slightly different position, where you can still be the leader and still make a nice profit.

Trout and Ries talk a lot about "Cherchez le Creneau", a French expression that means "search for the hole". It's a great expression in marketing, in terms of "search for the hole in the market" and fill it.

Like you say... if LayerVault is more feature rich and pricier, then maybe you can grab a different chunk of the market. Do be wary of getting caught up competing on price though. That can lead to a "race to the bottom" scenario. See Thull's book Mastering The Complex Sale for a good discussion of that issue. If you go "down market" try to make it more than just "we're cheaper"... more like "Our product is simpler and easier to use" and if it also happens to be a bit cheaper, then so much the better. Better yet, make a simpler and easier to use product and then charge more than the competition! If you can convince people of the value you can provide, they'll pay for it. Again, see Thull for a lot on how to develop and communicate value.

FWIW, we find new competitors all the time... heck, one popped up in our backyard (almost literally) earlier this week, that we had somehow overlooked until a friend of mine interviewed with them. Yikes. But still, we keep moving forward.

I'm reminded too of what Bob Parsons (of GoDaddy fame) said once... paraphrasing slightly, it was basically "Don't be afraid to enter a crowded market. Just be better than everybody else".

Edit: Oh yeah, one last thing... call this a nitpick if you will, but I'm not really a fan of the name "Sception". "Why not?" you might ask. Well, because it sounds like a made up word, and it reminds me of famous "made up word" names like Inprise which sounded hideous and failed miserably. And it doesn't really fit the pattern of "short, easy to pronounce and easy to spell". Is it pronounced such that the first syllable is the same as the first syllable of "skeptic", or does it sound kinda like "inception"? And if somebody is telling somebody about it over the phone, or you run a radio ad, will it be obvious to somebody hearing the word, how it's spelled? Is it "skeption" or "sception" or something else?

More to the point, it isn't really evocative of anything meaningful (not to me anyway). A point that Trout & Ries emphasize in Positioning is how your names (company and product) should fit with your desired positioning and support the overall theme. Does "Sception" support a useful position ("lie" in Godin terms) that you want to establish?