Google announced and released a number of innovations to their core search product this week, including search options and support for microformats/RDFa.  What I think is most interesting about this is not so much the specifics of what they have done, but that they continue to innovate in core search.  This contrasts with several other big names on the Internet, such as eBay, which for years have not really improved their core offering.  One thing this suggests is that Google has in fact built a more robust platform which enables these kind of new features to be developed, tested and deployed.  It also suggests that head-on competing with Google in search will be hard for Microsoft and Yahoo (never mind startups).

There is an important lesson in this for startups.  As you grow, there is a real payoff to superior engineering.  This is tough advice to follow because it has to be balanced with actually getting going and into the market in the first place.  So in the ideal scenario, you get launched quickly, but as you go along, you continually improve your codebase.  You will know if you are doing it right if over time it becomes no harder (or possibly even easier) to add new features than it was when you were just getting going.  So while for a lot of Internet startups it may not look at first like the quality of engineering matters that much, I believe it makes a big difference in long run competitiveness.