Changing Inside, Watching Outside: Understanding Business Model Adaptations to Gide Information Technology Decisions

In this paper, we explore the reasons for the survival of some Internet start-ups within the framework of organizational adaptation, and propose that the performance of a firm in a fast-changing environment is related to the adaptability of its business model. Our motivation is the lack of empirical work on firm adaptation in a hyper-competitive environment. We use the event-study methodology to assess the impact of 885 business model changes undertaken by 20 dot-coms. Combining the concept of business models with finegrained longitudinal data, we argue for the value of external indicators to management when engaging in internal change. We show that the market rewarded certain types of changes more favorably than others, and suggest that firms could use market reactions to guide their evolution and IT investments. This paper presents the first empirical test of business model changes, and validates the notions put forward by earlier authors of the significant future benefits accruing to firms that adapt consistently.