The Perfect Storm (part 4)

Britannica did recognize the potential value of an electronic encyclopedia, however – and so did its competitors. Grolier was first out of the gate, releasing a text-only edition of its encyclopedia in 1985, by which point Microsoft had committed itself to developing a multimedia CD-ROM encyclopedia. Not long after turning Microsoft away, Britannica began to develop its own multimedia CD-ROM encyclopedia – but not using its flagship product. Instead, it used text and images from a cheaper and less highly regarded encyclopedia that it also owned: Compton’s, a reference work geared toward schools and schoolchildren.

The result, released in 1991 on disks for PCs and Macs, was Compton’s Multimedia Encyclopedia. But what exactly was this product? Britannica didn’t seem quite sure. It gave the disk away to customers who bought the print encyclopedia. That reassured its door-to-door representatives, because it suggested that the product was nothing more than a “sales closer” – a gimmick that wouldn’t affect sales of the real encyclopedia. But Britannica also made the new Compton’s available to the general public for $895, a price suggesting that this new encyclopedia in fact was a high-end competitor to the print encyclopedia.

This dual approach failed on both fronts. Encyclopedia owners, led on by the sales force, assigned no value to Compton’s Multimedia Encyclopedia and showed little interest in it, and general consumers judged $895 far too much to pay for an encyclopedia that was clearly second-rate. By 1993, after a series of price reductions that failed to elicit much interest, Britannica cut its losses and sold off the new Compton’s, along with Britannica’s whole NewMedia unit, to the Chicago Tribune, and decided to focus its efforts on an internet-based version of the print encyclopedia, to be called Britannica Online. Meanwhile, however, sales of the print encyclopedia had begun to slide, going from $650 million in 1991 to $540 million in 1993. That was the year Microsoft launched Encarta, its CD-ROM encyclopedia.

Spurned by Britannica, and later by World Book, Microsoft had bought the rights to the moribund Funk & Wagnalls New Encyclopedia. From the perspective of the market for print encyclopedias, Funk & Wagnalls’ text was significantly inferior to Britannica’s, as was its reputation. However, in the new market, its text had an important advantage: It was composed in a consistent, almost modular format that lent itself to digitization, search, and hyperlinking much better than Britannica’s voluminous text would have.

This meant that Microsoft was able to produce a marketable CD-ROM quickly. Microsoft decided to scrap the name “Funk & Wagnalls” altogether, and instead focused on differentiating its new product by enhancing the text with graphics and sound, by investing in search technologies, by creating links that fed digital users’ natural propensity for hopping from subject to subject, and by frequently adding and updating entries on current affairs. Microsoft didn’t try to compete with Britannica on quality and reputation.

Instead, it used the natural strengths of the new medium – video clips, search, hyperlinks, and frequent content updates – to stretch the idea of what an encyclopedia was, and to expand its potential audience. Encarta was to be a family product for use on home computers by parents and children alike, and it would cost only $99. The new approach worked. Microsoft sold 350,000 copies of Encarta in its first year, and a million the year after that.

Sensing danger, and with its print sales sliding, Britannica at last decided, in 1994, to create a CD-ROM of its flagship encyclopedia – only to meet with stiff resistance from its sales force, which once again argued that an electronic edition would cannibalize print sales. So the company revived the strategy it had deployed for Compton’s effort, this approach failed. Consumers balked at the price, and within two years Britannica was selling the CD-ROM for $200. Even then the company couldn’t compete with Encarta, which offered a cheaper product that was more fun to use.

Encarta’s content and reputation weren’t nearly as good as those of the Encyclopedia Britannica – not, at least, on the basis of the metrics established for the existing market for print encyclopedias – but for a lot of people it was good enough, particularly when combined with the new sources of value a digital encyclopedia could provide – graphics, sound, and search.

By 1996, sales of the Encyclopedia Britannica had fallen to $325 million, half of what they had been only five years earlier. Not even Britannica online – had been able to stop the decline. That year, with regret, Britannica’s CEO, Joseph Esposito, sold the enterprise for $135 million to the Swiss financier Jacob Safra, who would prove unable to reverse the company’s fortunes. In 2012, faced with the increasing popularity of Wikipedia (an encyclopedia whose content was generated by users, not by trained experts and professional editors), Britannica announced that it would no longer produce a print version of its encyclopedia. The Britannica’s run of more than 200 years had come to an end.