Salvatore Torrisi analyses the development of the software industry within the context of theories of technical change. He interprets exhaustive surveys of firms participating in software industries conducted between 1990 and 1997. These reveal the main characteristics of innovative activities in software, including the characteristics of product and process innovations, the sources of technological change within firms, the instruments for the protection of innovation and the nature of innovative skills. The author also compares the historical evolution of software activities in Europe and in the United States and explains the differences in specialisation and performance in terms of the geographical proximity to leading hardware manufacturers, the size of the domestic market, regulation, and public policies, including property rights and anti-trust. This unparalleled book will be required reading for academics interested in industrial organisation and the economics of innovation.