[dcminter]

I have no advice, but this worries me:

"The product [...], has zero features other than what we consider the one, basic, bare minimum feature of the product space."

That sounds like a well targeted product to me, however you feel about it. Could you produce an economy version of your existing application that only had that feature? Then you would be in a good position to upsell later on. Even if the time scales make it impractical for this bid, it might be useful if you come up against this guy again later.

[TrevorJ]

depends on how you define features. For instance if you say that a firewall has a single feature of keeping your network safe then maybe not, but in reality, there are lots of sub-features involved in that that may not be irreducibly complex.