Joel, Apple actually turned down the deal with IBM, which was described as the worst business mistake of the 20th century, so it was more of a case of entering 1st, as there wasn't actually a competitor, as such.
I would say that based on the success of Bebo and Facebook, it certainly seems there is room for competition, and the incredible rise in popularity of YouTube is astonishing, all because of user content. The problem you'll have is giving people enough reason to join, and making them return. A friend and I setup a rival to Diaryland about 5 years ago, which, at the time, was the main blogging website. We offered more features, better support, easier use, extended functions of Diaryland and made it completely compatible with their templates, so you could just port them over and they'd work straight away. We even made all of the Diaryland paid-for features free. However, the main problem was that people were loyal to Diaryland. Not because of their features, but because of their community and their input into Diaryland. Because of this, we wrote a script that would download every single entry they'd ever done, back-it-up, and put it into our database. So, within 1 minute, everything that held them committed to a website was now moved over to ours. It was the most successful feature on the entire site, because it removed the biggest fear they had in joining and investing into it from the beginning.
