Sunday, July 19, 2015

Decline and Fall of the Encyclopedia Britannica

Encyclopedia Britannica, one of the earliest encyclopedias and most successful brands, dominated the industry for almost 100 years. After successful years in the industry it faced financial crisis in 1996 as its revenue plummeted.

Britannica, known for repository of serious information became a trusted brand delivering high quality, intellectual work to the customers. It became an attractive place for employees - salesmen, researchers, editors – the best employees wanted to work here. They hired the best brains and these people would do the articles at any price, as it was impressive to have Britannica on the resume.

In 1900s, it became an iconic brand, with one of the strongest sales forces in the world, marketing, branding and content. The cost of an encyclopedia was $250 and they would sell it for apx $1500 in large volumes. We can imagine the magnitude of success. But these core competencies were threatened by the advent of Microsoft’s software in 1985. They wanted to bundle the Operating System with CD-ROM encyclopedia. Britannica was offered to partner with Microsoft. They refused. This decision changed their future forever. On the one hand where Microsoft tied connections with another encyclopedia Funk & Wagnall, Britannica on the other hand started building its own multimedia CD-ROM version of the encyclopedia. This was a failure for a lot of reasons:
  • ·      The pricing decision strategy was the same as the print media
  • ·      Sales forces had no experience with computers. Since Britannica’s sales strategy was the same, the sale rep was asked to undergo the same process of going door to door selling CD-ROM and installing into customer’s computers. With no knowledge of the computers, the one year long training was in vain.
  • ·      The price was too high, ended up for only niche segment – high-end market, which they did not consider worth the price. The value was not high. They sold it for $900 in comparison to Microsoft’s $90 product.
  • ·      The content of Britannica’s encyclopedia had special characters, symbols, and mathematical notations.

Britannica lacked the experience, expertise and skill to venture into multimedia from print. Their competencies were content and selling print material. Taking the same strategy to electronic media and competing with Microsoft was a failed strategy. Microsoft knew how to sell software, how to present in CD-ROM, how to use and compress space – these were Microsoft’s competencies. Bundling with operating system and their prior experience made the cost and price of CD-ROM much lower than that of Britannica. In the next few years popularity of computers increased, and sales of Britannica declined.
Britannica should have done what it is best in – publishing content and selling print whilst accepting partnership with Microsoft – who would sell the electronic version of Britannica’s content. Instead, they declined and tried to expand in an area where they had no experience. Adding to the misery was competing with one whose core competency was software developing and selling.

A classic example of Pseudo Adjacencies, "where companies overestimate the transferability of their core capabilities".

Sources:

[2] The Crisis of Encyclopedia Britannica, Kellogg School

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