Imagine if someone could compete with Wal-mart on price….
They can't of course. But just imagine that they could.
Because that is exactly what the new wave of web services are doing. See, when you write code, it doesn't normally cost you much to use it the 2nd through 9 billionth time. That first one is expensive. Stores like Amazon.com make money hand over fist because they have innovated on so many levels that they have become almost unstoppable at what they do. But thousands of little sites are popping up everwhere that are undercutting the established market leaders. Mint.com is attacking Quickbooks. MailChimp can beat out ConstantContact for most smaller tasks for free. freepdfconvert.com can handle most of the tasks that people use Acrobat Standard or Pro for.
Most people don't need a Swiss Army knife. They really just want a great knife or can opener when they need it, preferably one that is easy to use and even better, free. By focusing on very simple, individualized tasks, people can pretty easily reduce the cost of that first roll out of the software and then make a small amount on advertising revenue from there out. Expenses are very low (as are expectations), and changes can be made rapidly based on feedback.
In order to take down a skyscraper, you can either try to attack it broadside with a wrecking ball or you can go after the foundation with a super soaker.