A market with a successful competitor can be a good sign of consumer demand. However, a market with dozens or hundreds of failed/stagnant startups and no standout winners is a bad sign that you are working on a startup fad.
I had four or five examples ready to go, but I didn't say them because I know people working on each of them :)
The startup fad that caught me was a phone app that helps you meet strangers near you. I thought I was being unique and clever, but then a hundred other startups came out in the space and failed spectacularly. The only one that survived was grindr.
