Business week recently interviewed Jason Fried of 37Signals:
BW: What's the advantage of offering software with fewer features, given that rivals might be able to convince customers their software is better because it does more?
JF: No one can really beat us on the low end. It's just what you need, and nothing you don't. You're always going to have more people on the low end who just need a few things. Every additional thing you add to a product, you're reducing your market size, not increasing it. The more stuff you add to a product, the more people you end up upsetting, and the more people you end up alienating.