Competing for product innovation in knowledge intensive industries: the case of the Digital Audio Players

We study product innovation in a very dynamic knowledge intensive industry characterised by rapid technical change. Relying upon a comprehensive database of 586 innovative products in the Digital Audio Player (DAP) industry marketed between 2001 and 2009 we analyse the product differentiation strategy of firms distinguishing between de-novo entrants and diversifiers. Our results highlight a substantial variety of supply in the industry as convergence toward a similar design is rather low. In addition to this, convergence is also low across type of entrants as de-novo firms look for ways of fending-off competition from more ‘resource-rich’ diversifiers. These findings suggest that, despite the presence of undisputable leader (Apple), there is much more variety of strategy and innovative products in the industry than one could expect. A straightforward policy implication is the need to nurture and sustain variety in order to promote innovation in knowledge intensive industries.