They don't eliminate setup costs - there is an engineering fee but it is relatively small and makes small orders economic.
They took a bet that a mostly automated service would be popular. Based on what I can see, they seriously underestimated that. I would not be surprised to see other PCB services (Allpcb, pcbway, seeeeeed,...) jumping in. If anyone ever offers a reasonable set of connectors and other mechanicals, they will be getting my orders.
By the way, they are clearly trying to discourage the really small orders - 5 units or less. In the last couple of months they appear to have significantly increased the number of components with minimum order numbers and I see a lot more parts with attrition. In the last couple of weeks I did a proto run for a design and really only needed 3 boards but the cost difference between 3 and 10 was really small (about $1 each for the extra boards) so I had 10 made. Yet, they still limit you to 30 units per assembly job.