Tuning into the Digital Channel: Evaluating Business Model Fit for Internet Firm Survival.
Abstract
More than 5,000 Internet firms have failed since the beginning of 2000. One common perception is that the downturn in the economy drove many firms out of business. But then, why have some firms survived? In this research, we provide an empirical analysis by examining how the business model characteristics of an Internet firm affect its survival. We analyze a panel data set of 130 public Internet firms using two different techniques: non-parametric survival analysis, and the semiparametric Cox proportional hazards model. We characterize the survival rates throughout the lifetimes of the public Internet firms in our sample. Our results reveal that smaller firms that facilitate customer-provider interactions, are transaction brokers, and that rely on advertising as their primary source of revenue sources have had a lower likelihood of bankruptcy or failure. In addition, the detrimental effects on failing to serve as interaction platforms for individuals and businesses, and a larger firm size diminish over time as Internet firms mature, and the weaker ones are forced out of the marketplace. Our research also points out important dimensions of an Internet firm's business model that affect its survival.