Is there a rationale for services R&D and innovation policies?

Do services R&D and innovation matter? If so, what policy options are available to facilitate services R&D and innovation? This paper addresses these two questions. We discuss whether market (and systemic) failures apply to services and services R&D and innovation. The usual storyline to pay no specific attention to services in R&D and innovation policies is challenged. Three major approaches (assimilation, demarcation and systemic) to services R&D and innovation policy are discussed and practical policy options along these lines offered. It is concluded that the current debate on service innovation suffers from too much assimilation and demarcation thinking and lacks a vision as to how services are part and parcel of innovation systems. A systemic vision may emerge, providing a new analytical framework for developing new and more effective services R&D and innovation policies.