Innovations are essential if an economy wants to stay competitive. Service products are intangible, interactive and are often produced and consumed simultaneously. Thus, the importance of knowledge as a production factor is crucial for innovations in the service sector. The concept includes both the internal knowledge of a firm, which comes from its employees, and the external knowledge held by customers, business partners and competitors.During the last few years, new web-based applications have emerged which allow for an interactive and collaborative participation in the Internet. Above all, these applications, which are also called social software, have influenced the Internet usage and communication behaviour of private individuals. Connecting users and knowledge, social software includes among others blogs, wikis and social networking. Social software is also increasingly used by companies in order to generate, exchange and manage knowledge, thus contributing to enhance their innovative skills.The positive effects on innovation which may be generated through social software can be attributed to the possibility to employ these applications both within and outside a firm to collect knowledge. Moreover, they can be used for knowledge management. Social software can be used for customer-specific marketing, for example, and thus serves customer retention. On the other side, customer evaluations and feedback can contribute to enhance and develop products and services. Moreover, social software can be used for internal knowledge management: By providing faster access to information, more efficient communication, smart tagging and linking methods, social software contributes to the accumulation and exchange of knowledge and also makes knowledge more transparent. This again leads to the creation of new processes and services.The focus of this project was to empirically analyse the relationship between the use of social software and the innovative skills of ICT and knowledge-intensive service providers. Thereby, the application of social software constitutes the knowledge sourcing activity. The project reveals that firms which use social software are more likely to innovate. Taking into account former innovative activities of the firm and its previous propensity to adopt new technologies and to change processes, the analysis suggests a causality between social software use and innovation that runs from social software to service innovation.Furthermore, it was analysed whether the importance of social software for innovation differs according to the use of these applications for internal or external purposes, that is, whether it is used to gain access to internal or external knowledge. The analysis reveals no robust results on the impact of knowledge sourcing activity focusing on external knowledge and on internal knowledge and thus allows no statement on different impacts of social software use according to its application purpose.The data used for this project were based on the business survey of service providers of the information society, which was conducted by the ICT research group of the ZEW. It is a representative sample of firms in the branches of software and IT services, ICT-specialised trade, telecommunication services, tax consultancy and accounting, management consultancy, architecture, technical consultancy and planning, research and development as well as advertising.