Richard MacManus has put forward a nice write-up on why startups must specialize to survive, but I have to disagree on his assessment that the long-term prospects favor specialists over generalists.

Long-term prospects favor market share incumbents, not niche providers.  Start-ups tend to specialize because they have to in order to gain any share, not because they should want to.  On nearly every measurable metric Walmart is orders of magnitude more successful than Staples, just as Google is orders of magnitude more successful than the entire set of niche vertical search plays who arguably serve their niches more effectively.  The trend is not away from those companies, it is towards them, and the challenge for us startups is how to break out and get into that camp.

So starting niche may be required, but ending there is not ideal.