When entering foreign markets, software firms need to make a fundamental choice on the distribution arrangements for software and related services. This choice may involve contracting with local partners or entering foreign markets through company-owned channels. This study focuses on analyzing such boundary choices of software product firms in international markets. Taking a knowledge-based perspective, a research model is developed that outlines the influence of software product and service characteristics on software firms’ international entry mode choices. The research model is tested using PLS based on survey data from internationally operating software firms. In line with the knowledge-based reasoning, the results point out the need for software firms to enter foreign markets through company-owned channels if the business processes and the functionality reflected in a software product are highly specific and if a high share of complementary services is provided. In contrast, if significant country-specific adaptations of software products need to be performed, in particular language localization, the required knowledge is most effectively integrated through cooperation with local sales partners.