Everyone is talking about the Microsoft + Yahoo search deal – it’s all over the news. There’s something lying beneath the economics of the whole thing that bothers me in particular, however. Something Jason Calacanis highlighted in his latest newsletter/post – how Yahoo lost the fight when they stopped innovating.

The fact that there was a deal on Yahoo’s table grabbed Y!’s attention for too long. That made them stop focusing on search innovation, while Google and Microsoft clearly kept moving forward. Truth is on any product, if you’re halted for a few months, you’re dying. We’ve seen this happen to ourselves with our project management solution, Goplan. Now that we’re back on the helm, with a focus on innovation, our numbers are up, our clients are happier, and we are too.

It is really easy to lose focus in this business. And sometimes, more often than not, the price is steep. Yahoo literally abandoned the second spot in the search market for a deal that may end up cannibalizing the rest of their company. One would hope not, as Yahoo has always been an inspiration for entrepreneurs and smaller companies – but things are not looking good.

All this to end on Jason’s note, that you can never stop innovating. Ask the folks at Yahoo – they’ll know.