Concept Innovation in the Software Industry: 1990-2002

This study investigates concept innovation, when firms create new market category labels to differentiate their products. Data suggest that concept innovation is frequent. But little is known about its antecedents. This study proposes that concept innovation depends on both a firm’s technological inventions and constraints from existing classification. Firms that develop technologies that combine elements across market categories are more likely to engage in concept innovation – when categories are constraining. But when a firm’s categories are lenient, the relationship breaks down and leniency itself leads to concept innovation as firms attempt to resolve ambiguity in the environment. Results support hypotheses in a longitudinal analysis of concept innovation for 4,566 firms and 456 market categories in the software industry between 1990 and 2002.