Innovation processes in the service sector exhibit substantial differences com-pared to the manufacturing sector. Rather than replacing existing products, new services broaden the range of product variety available and help firms adjust their supply to specific customer requests. Innovations in services are more difficult to identify than in the manufacturing sector. Although many innovative service providers depend on technological input from the manufacturing sector, several service providers, especially knowledge-intensive businesses, contribute signifi-cantly to the innovative dynamics of the economy as a whole. Information and communication technologies (ICT) are by far the most important technological inputs for innovative projects in the service sector. Analyses using the Mannheim Innovation Panel show that the deployment of ICT has a substantial positive effect particularly on quality assurance. Moreover, ICT stimulate the further in-ternationalization of the service sector by reducing the costs of outsourcing busi-ness operations to foreign countries. Furthermore, the tradability of many serv-ices is enabled only by the use of ICT.