There are a lot of comments here about the adversarial nature of a such a question, and they're completely correct: Asking this question is an assertion of dominance. They're also not wrong that assertions of dominance tend to backfire and elicit indignation.
The key insight though, is that dominant individuals tend to respond to assertions of dominance with their own return assertion of dominance. In other words, they don't like being dominated, and it's this reaction VCs are typically looking for as dominant behavior is likely perceived as a requisite character trait for entrepreneurial success. Programmers though tend to conversely be a prestige driven culture and respond negatively to dominance challenges like this.
If you're curious to know more, checkout the very interesting paper "Two Ways to the Top: Evidence That Dominance and Prestige Are Distinct Yet Viable Avenues to Social Rank and Influence"[1]
I think I disagree with your comment regarding programmers: Linus is admired for such strong opinions, close to impoliteness, for example.
More than a jujutsu technique for dealing with such incisive questions, it is clear that being the second contender to enter the marker saves you the trouble of having to create such market (and it is sometimes reasonable to play it this safe). It's just a different approach to making money. To me, a VC asking this is a sign of weakness on his behalf (due to ignorance?).
1. Linus is in a dominant position. Dominance doesn't invoke indignance when it's directed toward non-tribesman or by the alpha (the paper discusses this). What's interesting about this, is you can read whether someone perceives Linus to be an/the alpha based on whether they reject or accept his behavior. Further interesting, if they accept his behavior, they are likely self-associating with whichever tribe they consider Linus to be the alpha of (e.g., programmers, Linux, OSes, etc...).
2. Yes, I agree on a VC's concern of risks on the viability of a market. (See First Mover Advantage myth) I'm focusing more on the way it's communicated rather than the content or the why.
3. Yes, I think you're right that a VC is masking weakness if he asks this, as opposed to, "How are you different from X?" Though, IMO it's still an assertion of dominance, similar to a veil of bravado.
The key insight though, is that dominant individuals tend to respond to assertions of dominance with their own return assertion of dominance. In other words, they don't like being dominated, and it's this reaction VCs are typically looking for as dominant behavior is likely perceived as a requisite character trait for entrepreneurial success. Programmers though tend to conversely be a prestige driven culture and respond negatively to dominance challenges like this.
If you're curious to know more, checkout the very interesting paper "Two Ways to the Top: Evidence That Dominance and Prestige Are Distinct Yet Viable Avenues to Social Rank and Influence"[1]
[1] http://www2.psych.ubc.ca/~henrich/pdfs/Cheng%20et%20al.%20(2...