Based on resourcebased theory and review of the literature on innovation, this article argues that the impact of customer interaction on the knowledgeintensive business service innovation should consider both the benefits and risks by involving customers into the innovation process. Furthermore, the appropriateness of customer interaction also varies by process stage because different nature of tasks to be performed at different stages of NSD. Based on the questionnaire, the impact of customer interaction on service innovation is studied by using OLS (ordinary least square). The research results show: the intensity of customer interaction in the idea generation and testing & Evaluation are both significantly positive to the innovative performance of customer perspective, while concept development stage negative to the innovative performance of the service provider perspective.