The incumbent’s dilemma and solution
Britannica: an educational experience
There is perhaps no single business that exemplies the traumas
a traditional business can experience in the digital age as well as
Encyclopaedia Britannica. In the 1980s it was a brilliant business
selling $1,000, 30-volume encyclopaedias. Editorially, it was peerless.
Contributors had included Sigmund Freud, Albert Einstein and Leon
Trotsky; and every article was checked with 17 silent readings by its
editors. Commercially, it was a well-oiled sales machine. Leads were
generated from print advertising, collated centrally and farmed out
to the door-to-door sales team. They would offer a well prepared
spiel explaining to aspirational parents that $1,000 was a small price
to pay for a child’s education, and they earned hundreds of dollars’
commission with every sale.
In the early 1990s, however, the business was ravaged by the arrival of
the CD-rom and, in particular, by Microsoft’s Encarta which sold at a
fraction of the price of a print encyclopedia. Encarta went from $395,
to $129, to $99 and then down to $50. Millions of copies were sold or
given away free with PCs. This was not a money maker for Microsoft
but it helped to drive Bill Gates’ vision of a PC in every home. Parents,
meanwhile, decided in droves, that if they were going to spend $1,000
on their children’s education it would be better spent on a PC rather
than an encyclopaedia especially if the PC came with a free copy of
Britannica was no digital slouch. In 1989, they
launched the rst multimedia CD-rom using their
secondary encyclopaedia brand Comptons (partly
to avoid devaluing Encyclopaedia Britannica, but
also because it was too big to t onto a CD-rom).
Business Week named it one of their products of
the year, but the initial pricing was designed to
protect the encyclopaedia and keep the crucial sales team happy:
you either got it free with the print edition or had to pay a staggering
$895 for it.
the initial
pricing was
designed to
protect the
Creative disruption54
Britannica also had a brilliant Advanced Technology Group in La
Jolla, South California, which led the endishly difcult process of
taking the Britannica database online (one of the main challenges
was getting all the special characters and mathematical formulae
converted). But La Jolla was a long way from Chicago geographi-
cally and culturally and according to the company’s former editor
in chief, Robert McHenry, the business suffered as a result of ‘the
inability of the company’s senior management to embrace electronic
publishing and pursue it forcefully’.
Britannica eventually launched its own CD-rom on two discs, and a
subscription-based web version of the encyclopaedia, but its business
had already been shaken to the core. In 1995 the owner, the William
Benton Foundation, sold it to the billionaire Jacob Safra, who started
a programme of radical and expensive reinvention. The door-to-
door sales team, and the central team that supported Britannica was
dismantled, with nearly 2,000 lay-offs. The business was dragged from
the print to the digital age.
Britannica launched an edited search engine in partnership with
Yahoo! Ultimately it would never have competed with Google, but
it never got a chance when the nascent online advertising market
became one of the rst victims of the dotcom crash, the project was
killed off.
Then came Wikipedia. The impact on Britannica’s business was nothing
like as dramatic as the chaos wreaked by Encarta, but it profoundly
damaged their reputation. Wikipedia was the bottom-up, wisdom-
of-the-crowds embodiment of everything that was wonderful about
the web. At every opportunity this was compared with Britannica’s
hierarchical editorial processes. To compound this, in December 2005,
highly respected Nature magazine ran a ‘special report’ titled ‘Internet
encyclopaedias go head to head’, with the conclusion that the level
of errors in a set of randomly chosen Britannica articles was not a
4  http://www.howtoknow.com/BOL1.html

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