If you would use the competitor and be completely happy with it then drop it. If you are confident in your ability to provide a better value add then the competitor then charge ahead. Your only loss is a little time.
The issue here is that my product is definitely better designed, and can match (perhaps even slightly bypass) the technical capabilities of the rival product!
But It'd be safe to say the following — The "rival" has established a (4-5k people) community around the product, and my better designed version aims to build a larger community of users. I'm not going to be charging, and neither is he.
Similar to the above poster, I think you have to determine what your goals are for your own side project. Is it mostly a learning exercise for yourself? Was it your lottery ticket? Were you just simply trying to build a product that solved your own problem that you didn't think existed at the time?
If you both aren't going to be charging for it, is the other one open source? Is there some kind of arrangement you two can make to work together?
Also consider how difficult your added value would be for the competition to implement.
If you pose any threat to your competitor, they'll knock-off your features before you get off the ground. Then, you lose your main selling point and you're left in the dust.
The issue here is that my product is definitely better designed, and can match (perhaps even slightly bypass) the technical capabilities of the rival product!
But It'd be safe to say the following — The "rival" has established a (4-5k people) community around the product, and my better designed version aims to build a larger community of users. I'm not going to be charging, and neither is he.