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Encyclopaedia Britannica’s Transformation

February 07, 2013
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An interview with Jorge Cauz, president of Encyclopaedia Britannica. He is the author of the article Encyclopaedia Britannica’s President on Killing Off a 244-Year-Old Product.

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SCOTT BERINATO: Welcome to the HBR IdeaCast. I’m Scott Berinato. I’m joined today by Jorge Cauz, president of the Encyclopaedia Britannica Company. It was one year ago that Jorge and his executive staff made the momentous decision to cease publishing the printed set of the Encyclopaedia Britannica, a 244-year-old product.

In the March issue of HBR, Jorge explains why this was not a difficult decision, and how the company had long since moved on from the printed-reference business. Jorge, thank you for joining us.

JORGE CAUZ: Thank you very much, Scott.

SCOTT BERINATO: So I want you to take me back to 1996 when you arrived at Encyclopaedia Britannica. I think many people will think this story starts with the internet, but it doesn’t. What was happening in 1996?

JORGE CAUZ: So when I first came into the company, it was a completely different company, a company that had been severely impacted by a new technology. And back then the technology was basically the CD-ROM, although online was beginning to be a presence in the consumer space. In the households, it wasn’t really as prevalent as it is today, obviously.

And it had been a company that, basically, had seen its sales plummeting from maybe 120,000 print sets that they had in 1990 to probably around 30,000 or 35,000 print sets. That is more or less the volume that it had in 1996. So it was a company that didn’t have enough time to change, even though it had been really a pioneer in digital technologies for a long, long time. It really didn’t have enough time to change its business model, because it was just impossible.

So it was a company a little bit in shock. And what was very interesting about the company then was that the people that worked at Britannica really still believed on the premise of what Britannica was all about and the value proposition, that they always believed that there was going to be an important market, or size of the market that was interested in getting this scholarly knowledge written for them. So there was never really a loss in the faith of what Britannica was all about. But there was a significant understanding that things needed to change rapidly.

SCOTT BERINATO: And this was before the internet had really taken hold and Wikipedia had come along. But what you’re saying is this was as bad a disruption as the internet would be?

JORGE CAUZ: Well, yeah. Actually, the biggest disruption that I think– if I look at the darkest time of Britannica ever was that time when we walked in and the CD-ROM was really disrupting the print set. And there was not really quite the penetration of the internet into the households. That was really, I would say, the most vulnerable time that I have ever seen Britannica. And why it was vulnerable, because without the penetration of the internet into the households, we really didn’t have a very large market to whom we could address directly without having to go through the retailer, and with whom we could actually communicate directly online.

And year one, then the model really started changing, and Britannica started seeing a lot more opportunities. That really didn’t happen maybe until 1998, where we really saw a very large amount of penetration in the US, and in the UK, and in Australia in terms of internet usage, where people were beginning to buy more content online, where there were abilities to bundle the content with ISPs. We were able to get away from the real command and pressure that Microsoft was putting into the retail market for being the only encyclopedia into the channel.

So we were able to find a different channel, a channel that was much more profitable, because they didn’t have any cost of goods sold, and where we could have that direct relationship with the user. So the internet wasn’t as disruptive at the beginning as it was the CD-ROM. For us, the internet was really a lifesaver.

SCOTT BERINATO: I think people will be surprised to hear you say that, that the internet was not the thing that worried you the most.

JORGE CAUZ: Had the penetration off the internet access into consumer space had been delayed by five years, I’m not sure that I would be here talking to you. The CD-ROM was really the dark time of Britannica. Once again, once the consumers just started having access to the internet and being hungry for content, yeah, we began to have a very robust, direct business, and a business that had much greater selling margin. We didn’t have to offer a discount of 50% to the wholesaler, and another 25% to the retailer, and we only got 25%, basically, every CD-ROM.

We didn’t have to go through on any of that. We didn’t have to have dated content. We were beginning to publish online on a continuous basis. So it was a very, very different type of business model, and a model that was much more profitable.

SCOTT BERINATO: But you didn’t just switch channels with the same products. You started developing new types of products, like learning products. You had one called Britannica School. Did those products take off right away?

JORGE CAUZ: It was very, very, very little sales, and with more of a vision than really a delivery. And since then, we started creating a channel. We started to resonate with the market. We invested significant amounts of money to create the most robust learning portal for that market. And as we created the channel, and as we really started to penetrate the market, we really understood that providing the information wasn’t really the key part for us. But it needed to go beyond informational text, and that we could actually start developing supplemental materials that were completely linked to the curriculum that had some assessment in it, that provided differentiated learning for the different grade levels or for the different reading levels.

And we started evolving into a completely different kind of product than the ones that we had before. And this really became a more important part of our strategy in the mid-2000s. We really started investing quite heavily into that market. Because as much as we would like to say that we have great intuition, I think the best thing that a person can do when he or she is running a business is looking at where the revenue’s coming from, and listening to the customers.

And we really understood that, hey, this is a market that is really evolving quite rapidly. It’s a market where Britannica resonates. It’s a market where we have already a channel. We have a significant amount of content that we can repurpose, or re-edit and change. So we really started to do some soul-searching in terms of what our role would be there.

SCOTT BERINATO: A lot of what you describe here in terms of the challenges and how you reacted to them sound very similar to what a lot of media companies are going through right now in terms of disruption. Do you feel like you’ve provided something of a playbook for some of these companies?

JORGE CAUZ: In the same way that when I walked into Britannica and Britannica had been really impacted by the CD-ROM, what happened to Britannica back then, I think, is what’s happening in all of the content creation, regardless of the format, whether it be text, or video, or audio. And we were just basically the canary in the coal mine. We were the first ones to be impacted by what the technology was going to be. If you look at content creation and even look at encyclopedias, encyclopedias are in one full extreme of the content creation where there is a lot of printing, paper, and binding cost. There’s a lot of selling cost, and there’s a lot of superfluous things to the content generation.

SCOTT BERINATO: OK, I want to talk about the decision that you had to make last year to say we’re not going to publish the printed set anymore. We’re done with that. This is a 250-year-old product. It’s a brand icon. People around the world recognize the spines of Encyclopaedia Britannica books. Did that decision weigh heavily on you?

JORGE CAUZ: I wish I could tell you that it was a lot of struggle in trying to make the decision. But even though we– and I, personally– thought about it for maybe a year before we made the announcement, it was evident that it didn’t have any impact whatsoever in our business model. So it was not position, and it was not a piece of propaganda.

I just had come to the conclusion– and everyone in my team had come to the conclusion– that this was a product that had seen its life cycle pass by. And I suppose that really didn’t make any difference to us. We didn’t need to hold to it in any way to be able to survive in the future– to try to continue to be the same in the future.

On the other hand, we thought that there were some risks in making the announcement and some real upside potentials. The risks of making the announcement were some people would think that this was it, that this was a nail in the coffin. And that was the only concern that we had. It could be misinterpreted.

But on the other hand, we thought, hey no. This also can be a very different type of message. It’s a message that really more complies with the reality and that has nothing to do with propaganda, but just is telling the story as it is.

We’re looking at the financial statements every day. We know that this company is in good condition. We now, with Digital Solutions are finding a robust market. And let’s just talk about the story.

SCOTT BERINATO: And so today, for online reference anyway, it seems like it comes down to Britannica and Wikipedia. What do you think about that?

JORGE CAUZ: At the end of the day, it’s great that we have survived. And I think we’re lucky in English-speaking world, because there are two. In languages where you have a fewer number of speakers or readers of that language, you will only have one encyclopedia, and that encyclopedia is going to be Wikipedia. I do not know what the business model is going to be to create a curated source of knowledge in Italian language, or a created source of knowledge in Slavic, or whatever other language it is other than Wikipedia.

In English language, again, we’re lucky that Britannica is viable in continuing to do what it does. But it’s the only one. And I think that the lesson that one needs to take from this is social media can take over certain aspects of traditional publishers, but I think at the end of the day, the professional people that are dedicated to create certain kind of knowledge are going to be fewer. And the organizations that dedicate themselves to do that are going to be fewer. And that really is interesting for the industries.

What happens to the journalism, for example? Are we going to have fewer powerful media, journalistic companies that are able to step up to the powerful, that are able to do in-depth research, that are able to do what they have done sometimes very, very well, and sometimes not so well. But for the most part, they have been able to get a better balance of power. Or are we going to be relying on citizen journalism, which can be really good, but sometimes would not be able to knock the door of a mayor in a city, would not be able to ask and demand for answers, or just do what you’re doing today– research.

SCOTT BERINATO: So you and Wikipedia have different value propositions. I understand that. But the instant ubiquity of Wikipedia, how all of a sudden it was just there. And there were millions of entries, and it was the top of all those search results. That had to scare you.

JORGE CAUZ: I think that all of us understood that what’s really happening is that people may not be any more willing to pay for this type of content. That is really at the center of what we were thinking about. The editors never thought, it’s clear this article is better, is written better. This is factually correct. It is more balanced– all of these different things that make the article better.

And sometimes, actually, for those of us that create a lot of text– whether it be HBR or Britannica– we understand that text is not like video, that the qualities of text are not as easily observed to the naked eye unless you are really consciously reading, or paying attention to what you’re reading. Whereas a video, you have the lack of production quality, it becomes so apparent to you right away. If Wikipedia were to be a video, it would be probably all spotty, and gray. And people would see it, because it’s so badly written.

But people don’t seem to perceive that and don’t care about that. So we knew and understood that there was probably– there was a completely different quality, that ours was much better. So the issue here is preference. Do we believe people prefer ours? Yes. Do we believe that, therefore, they’re going to pay for it? Not necessarily.

SCOTT BERINATO: Britannica’s made two major transitions in the last two decades, first to digital media, and then to becoming a learning business. You’ve not only survived these transitions, but you seem to be thriving right now. Tell me what your secret is in making those big transitions.

JORGE CAUZ: I think at every single point, it has been a very, very important aspect of it. So we have not only understood the challenge, but also brought the talent that has helped us all take the next step. I think that has been vital for us. We have brought a significant amount of new talent into the company. The talent that it was always relevant to the next phase.

And again, to the company– it would be very difficult to recognize the company today as to what it was 14 years ago. The marketing and sales skills are very different. The editorial skills are very different. The markets in which we are, are very different, and the products that we create are very, very different. So we have a completely different set of skills that we have brought in from other media companies, as well as from educational companies.

And we don’t like traditional educational companies, by the way. We don’t like, necessarily, the big three curriculum players. I think that that’s where the disruption is going to happen next. We’ll like some of the more nimbler learning solutions that are appearing out there.

SCOTT BERINATO: OK, I’m going to give you one more chance to reconsider your decision from last year. Is there any chance at all that you’re going to bring the print set back?

JORGE CAUZ: I have to tell you, I think that there’s a generational attachment to the print that is undeniable. I think the younger people don’t have that sort of attachment to the print. They may have an attachment to a digital screen, or to their iPad, or to their iPhone. And that’s where the future is.

And we deeply believe culturally in the brand really doesn’t stand on the print set. We understand that the icon of the brand has meant for many, many times the print set. But the icon of the brand has also been– or the reputation of the brand has always been built on the scholars that write for it. It has always been about the scholars that wrote it, and what it said.

And yes, the print set is obviously very, very important as an icon of the brand. But we think that it’s undeniable– it’s undeniable. We cannot continue to print an icon. We need to get on with the times.

And I think it’s like a very old actress or actor that tried to hold to their youth. It just doesn’t work. You’ll get on with your times. And I think our times are digital, and the tradition is alive not because of a print. The tradition is alive because it resonates with a large part of the market, and it’s viable.

SCOTT BERINATO: OK, you’ve convinced me that you’re not bringing the printed set back. Thank you for your time, Jorge.

JORGE CAUZ: Thank you very much, Scott.

SCOTT BERINATO: That was Jorge Cauz, president of Encyclopaedia Britannica. You can read his firsthand account of how he took the company away from the printed set in the March issue of HBR.

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