What they should have done was to start with a single product like you said work on the essential features, get feedback and cruft out all the additional advanced functionality that the MS Office version has so you'd have a cleaner, leaner offering.
Although sometimes, at the end of the day, the issue isn't so much the software being the perfect tool but how compatible is the tool with existing processes. We use MS Office on the business side and OpenOffice on the engineering side - so much pain when sending documents across the two divisions with documents not looking the same.
Or take a step back, look at the ways people need to collect, manipulate and share information today, and consider whether a new application that fits into an established category like “word processor” or “spreadsheet” is still a good tool in the first place.
I don’t know what will eventually displace MS Office as the universal toolbox for these things, but somehow I doubt it will look very much like classical office applications at all.
Want to build the perfect tool, the better alternative? That's great, but why don't you start with a single product, say, a word processor, or a spreadsheet?
Start small, iterate, get feedback, and so on, and then expand.
If you were able to beat MS Office in a single product, you must be doing something right, and chances are you will get far more resources (developers, testers, etc.) to build other products.