Increasingly, firms are leveraging external knowledge sources for key technological components in creating innovations. However, use of external sources raises concerns about appropriability of technology for the firm i.e. is the firm able to get the required technical knowledge from the external sources. To address this concern firms choose appropriate governance mechanism for their technology collaboration with the objective to reduce the transaction cost associated with the technology collaboration. One reason for transaction cost to arise in technology collaborations is related to the nature of the innovation being developed. Using the framework of Thompson’s classification of organizational technology, the paper conceptualises the types of innovation as either mediating, long linked or intensive. Based on the typology of innovation, the paper analyses the appropriability issues that would arise when collaboration with external sources are used for creating the innovation and thereby propose what governance mechanism would be appropriate to address the issues of appropriability.