A firm's innovative capabilities depend on its ability to learn from the environment. To learn from the environment a firm must have access to external knowledge, and it must have the absorptive capacity to identify, assimilate and exploit such knowledge. While previous research recognized that firms must invest to acquire absorptive capacity, it assumed that access to knowledge spillovers is free, or a perfectly correlated component of R&D investments. We argue that a firm must also invest in developing organizational routines that search for and acquire access to knowledge spillover. In order to explore the relationship between own-knowledge development and search, we examine the relationship between software firms' R&D investments and their position within the patent citation network and their subsequent knowledge development and financial performance. The results show that a firm's position within the knowledge flow of the industry helps predict knowledge development and financial performance.