The objective of this paper is to examine the effects of knowledge interaction on different types of business innovation. We first identified three indicators that reflect on the quality of the interaction between customers and technological knowledge, and then classified business innovations as product innovation, problem‐solving innovation, or general innovation capability. Hypotheses about the impact of different qualities of knowledge interaction on business innovations were tested by collecting data from 178 high‐technology firms in Taiwan. The results revealed that product innovation requires both wide‐ranging and deep interaction between customers and technological knowledge, that problem‐solving innovation requires either wide‐ranging or deeper interaction between customers and technological knowledge, and that wide‐ranging knowledge interaction is the most important driver for building general innovation capability. The research results enhance our understanding of knowledge interaction, with a special focus on the content and quality of the knowledge interactions within an enterprise. It also helps business managers in allocating resources and facilitating interorganizational communications for different situations related to innovation.