Abstract
How can public policy best promote successful innovation in the Internet sector? This paper creates a typology of different types of Internet software firms. Institutions associated with the ‘Silicon Valley Model’ are a strong driver of success for some key Internet technologies. However, patterns of human‐resource development and knowledge management vary widely across Internet technologies, necessitating the development of very different commitments between managers and employees. Institutional frameworks associated with ‘organized’ economies, such as Germany or Japan, might provide superior tool‐kits to help some types of Internet firms to innovate. Furthermore, our analysis suggests that the creation of institutional incentives is not the only way to promote patterns of technologically intense innovation associated with Silicon Valley. Technological strategies of dominant firms are often equally important. Regardless of institutional environment, the development of entrepreneurial software firms can be strongly influenced by the activities of large firms working within core network telecommunication technologies.