As is often the case, I think it depends on your specific business and products. I have seen the niche site idea work extremely well, and not work at all. Something to really take into account when considering the multi-site option is: Do you have the resources to develop manage and market multiple sites?

I am an in-house SEO for a company that just launched a micro-brand. They could have opted to put these new products on their existing Web site, but the products and customers were going to be vastly different than the core customer persona of the main site, although they are all church ministry related.

Our main site is very large and I have advised that it would be better to separate out the three subsections of the site because, again, the customers of each leg of the business are completely different. We are in a highly competitive category too, so this makes it extremely hard to rank for important keywords because our messaging is trying to address three different businesses with one Website.

If you have the resources to handle multiple sites, and you're in a competitive space, I'd say go for the niche sites. But beware of Exact Match Domains. Google is crackin' down!

Hope this perspective helps a bit.

I agree 100% with MagicDude. After watching Everett Sizemore's E-commerce webinar I tried an experiment. We had a huge block of SEO copy on our home page. We were #2 in Google for our most important keyword.

I removed the copy and put it into the blog instead.

We dropped to #4 in Google.

I took the copy back out of the blog and returned it to the home page. Hopefully, we will recover the two spots we lost when I removed it.

I know people are saying this doesn't work. Maybe it's the quality of the writing that's the problem. We go to great lengths to make sure that any copy we include for SEO purposes reads well and is of some use to visitors.