The problem with competing on price is that anyone can do it. When you have the best whatever in the world often it is hard to replicate. It's easy to make a Rolex knockoff, but real hard to make a real Rolex. On the other hand any of a hundred manufacturers can produce a cheap watch.

Why do so many companies succumb to the allure of averaging? Money. Products that are the best in the world have great profit margins, but low sales because only a few well-endowed customers can buy them. When you sell to the masses your margins may be cut in half but your revenues go up a hundred times--an irresistable allure. Also, staying on the edge of top-quality can be hard. A toolmaker leaves, a designer retires, a founder sells out--the knowledge of how to make the best stuff is precious and ephemeral.

Nevertheless many companies stick with the core quality approach. In fact, all of northern Europe seems to operate on this principle. It's full of companies that dominate tiny, but lucrative niches, like inks and printing presses by focusing on making the best and leaving the cheap stuff to others.

In software the problems are the same. Do you make a complex, expert product with the most advanced features or do you make dummy-ware that anybody can operate? I think experience proves that in the long-term it is better to stick with quality and eschew the temptations of big sales. The reason for this is that core customers are much more important than their numbers indicate. Here is why:

  core expert customers:
     * pay top dollar
     * use the product much more intensively than amateurs
     * are industry leaders
     * make buying decisions for large groups of people
     * are imitated by the dozens of wannabes
     * figure stuff out on their own and require less technical support
     * give expert feedback

In so many ways your business relies on a few expert customers that it makes sense to cater to them exclusively and let the masses follow if they may. When you alienate the experts you are not just losing a slice of revenue, you are losing leadership in your product domain and that is what really hurts.

Look at Adobe Photoshop. Photoshop is complex and tough to operate yet Adobe has steadfastly refused to dumb down their interface for average users. They target their core customers: graphics professionals that use it every day. This is smart strategy because all the wannabes imitate the pros. If Adobe dumbed down photoshop for the amateurs the pros would switch to something else and the wannabes would follow them.

Think about it: a pro uses photoshop every day, maybe as much as 1000 hours a year. Compare to an amateur who might use it 10-20 hours a year. One pro is using your product 50 times as much as one amateur and is probably 500 times more productive. If you focus on the greater number of amateurs you are missing where the real work is getting done.

Expanding revenue with broader appeal is desirable, but don't forget who your real customer is, the expert user.