The impact of generative artificial intelligence on innovation: Evidence from software products

Abstract Research Summary 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 toward original innovation, which may be new to the market but not necessarily more novel than previous innovations. 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. Managerial Summary Generative AI tools are changing how organizations innovate. Studying the Firefox browser add‐on ecosystem, we find that after ChatGPT's release, the number of new add‐ons increased by 34%, driven by both existing and first‐time developers. However, developers simultaneously reduced improvements to their existing add‐ons by 20%, redirecting effort toward new projects. While new add‐ons drew on a broader set of knowledge domains, they were not substantially different from what already existed. This suggests that generative AI helps developers efficiently combine existing knowledge rather than produce truly novel ideas. For platform managers and business leaders, these findings highlight that although Generative AI can democratize product creation and accelerate new product launches, it may require new strategies to maintain product quality and encourage genuine novelty.