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These companies are focusing on providing fewer features to control their costs. But they are also ensuring that the features they do offer are well executed and easy to understand. They are taking the time to distill the actual useful essence of the product into a viable competitive product. Focus on solving the simple problems that people have and leave your competition to choke on the complexities.
For example, in the book Getting Real, by 37signals, the developers of Basecamp write how they chose Microsoft Project as their software "enemy." A good project management software should not be about charts and graphs, they argue, but about collaboration between team members set on completing the task at hand. The top-down dictatorial approach embodied by Project was not the ideal way to operate in the new web enabled world.
With the wealth of available tools and the power of direct outsourcing, micro businesses are proving to be capable competitors. With the amazing tools available online, it is now possible to do the impossible. What is clusmily called Web 2.0 has opened the floodgates for new businesses to provide remarkable products at low costs and still exceed customer expectations. The old business models required enormous overhead to, hopefully, achieve these goals. The old ways are dead; it's time to embrace the new paradigms.