The Impact of Generative Artificial Intelligence on Innovation: Evidence from Software Products

We study the impact of generative artificial intelligence (GAI) tools on product-level innovation outcomes in the context of software products. Specifically, we illustrate how GAI can alter the direction of innovation by shifting the activities of developers away from generational innovation and towards original innovation. We argue that this shift is driven by GAI’s ability to facilitate tasks in both the ideation and implementation of software products, which enables some developers to create software products that were previously beyond their reach, while allowing others to reallocate their effort with respect to different activities. Our analyses in the context of browser add-ons provide empirical evidence for these arguments. We discuss implications for innovation research and the generalizability of our findings to other domains.