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Encyclopædia Britannica’s President on Killing Off a 244-Year-Old Product

From the March 2013 Issue

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Photography: Encyclopædia Britannica, Inc.
The Idea: By the time Britannica’s top management decided to stop producing bound sets of the iconic encyclopedia, the company had made sweeping changes to put itself at the forefront of the online education market.

One year ago, my announcement that Encyclopædia Britannica would cease producing bound volumes sent ripples through the media world. Despite the vast migration of information from ink and paper to bits and screens, it seemed remarkable that a set of books published for almost a quarter of a millennium would go out of print. But in our Chicago offices this wasn’t an occasion to mourn. In fact, our employees held a party the day of the announcement, celebrating the fact that Britannica was still a growing and viable company. They ate the print set—in the form of a cake that pictured the 32-volume, 129-pound encyclopedia. They displayed 244 silver balloons—one for each year the encyclopedia had been in print. They toasted the departure of an old friend with champagne and the dawning of a new era with determination.

We had no need for a wake because we weren’t grieving. We had known for some time that this day was coming. Given how little revenue the print set generated, and given that we had long ago shifted to a digital-first editorial process, the bound volumes had become a distraction and a chore to put together. They could no longer hold the vast amount of information our customers demanded or be kept as up-to-date as today’s users expect.

The reaction to our announcement was interesting and varied. Some people were shocked. On Twitter, one person wrote, “I’m sorry I was unfaithful to you, Encyclopedia Britannica, Wikipedia was just there, and convenient, it meant nothing. Please, come back!”

Of course, we didn’t need to come back, because we hadn’t gone away and weren’t about to. But although most people seemed to know what was happening, some misunderstood. Commentators intimated that we had “yielded” to the internet. In fact, the internet enabled us to reinvent ourselves and open new channels of business. Reports cited Wikipedia as a disruptive force. In fact, Wikipedia helped us sharpen our business strategy. Our content model was dismissed as “vintage,” but it is actually anything but: We update our content continually, with community input, reaching tens of millions of people every day—and they pay for it.

I relished the irony. If you relied on free, gossipy online channels to understand why we were ending the print edition, you got what you paid for: some jokes, some inaccurate observations about the state of our business, and maybe a 20% chance of seeing “Encyclopædia Britannica” spelled correctly. You may not have learned that by the time we stopped publishing the print set, its sales represented only about 1% of our business, that we have an increasingly significant presence in the K–12 digital learning space, and that we’re as profitable now as we’ve ever been. Whatever ripples the announcement may have made, from a business perspective the decision itself was a nonevent. It was just the final phase of a carefully planned strategic transition that had been 35 years in the making.

The Real Threat

For the Britannica’s first 200 years, editorial revisions were made with a variety of manual and mechanical tools. Preparing each new edition took years at first, and never less than a year. Then, in the 1970s, the contents of the encyclopedia were loaded onto a mainframe computer to streamline the process of making annual updates.

Prescient editors and executives recognized that although digitization would make updating more efficient for print, it was only a matter of time before the medium of publication itself would be digital. And that would represent a threat to the way we did business: selling multivolume encyclopedias to families door-to-door. So in the 1980s we began preparing for that day, experimenting with digital technologies and even publishing the first electronic encyclopedias. Meanwhile, sales of the print version grew throughout the decade, and in 1990 the company’s overall business peaked: Our 2,000-plus salespeople sold more than 100,000 units of the iconic bound set in the United States.

Then the business collapsed.

The sales model started breaking down in 1991, as families became busier and had less patience for doorstep solicitations and as PCs began shipping with built-in CD-ROM drives—a potential knockout punch. The effect of CD-ROMs on the encyclopedia business can’t be overstated. The spines of the Encyclopædia Britannica lined up on a bookshelf always had much more cachet than those of competitors such as World Book and the Americana. But CD-ROMs lacked this visual presence; they obliterated the physical evidence of the Britannica’s superior depth and size, an important part of our value proposition then. They also created a new demand for multimedia and interactivity, with which print-focused editorial and product teams had little experience.

In 1994 Britannica produced its own CD-ROM encyclopedia. It was originally priced at $1,200, about the same as the bound set. But by then Microsoft was bundling its CD-ROM encyclopedia, Encarta, with the vast majority of Wintel computers as a loss leader to increase the sales of home PCs by positioning them as a learning tool and a homework helper.

It was a brilliant move by Microsoft and a very damaging one for Britannica. Regardless of quality, it was hard for a $1,200 CD-ROM to compete with a free one bundled with a PC. Our direct-sales force was the wrong channel for selling the CD-ROM encyclopedia; moreover, there was no easy way to change the traditional encyclopedia business model, in which the multivolume set was a break-even proposition and the profits came from ensuing subscriptions to the yearbook, a single volume of updates.

That same year, the company introduced Britannica Online, a web-based version of the Encyclopædia Britannica and the first such reference work on the internet. It was a bold move then: Few publishers had yet seen the web as a place to publish, let alone to put their entire flagship product. But it was a risky move, too. We knew that it would further cannibalize our own print market; we just didn’t know by how much. Digital sales rose, but slowly, while print sales fell off a cliff. The decline was dizzying: From more than 100,000 units in 1990, sales fell to 51,000 in 1994 and to just 3,000 in 1996, when I arrived. This was surely the company’s most vulnerable time.

Radical Change

Britannica was sold to the Swiss investor Jacob E. Safra in 1996, and I joined as a consultant helping to initiate the radical change Safra was looking for. To adapt to market shifts, we had to make several major transformations that would ultimately cost tens of millions of dollars. The most painful one involved changing the way we sold our products. The Britannica direct-sales force was at the center of the business structure; the vast majority of company revenue came from this door-to-door army that fanned out across the world. But that sales method had become obsolete, so we decided to abandon it and adopt other forms of direct marketing. We dismantled that part of the business in my first months on the job.

As we changed our sales focus to direct marketing, we tested price points on the CD-ROM encyclopedia and realized that our original price was too high. Like many content producers, we had assigned a value to our product on the basis of content and production costs. But customers were changing. They could get “good enough” content for much less—sometimes free. Within months we dropped the price from $1,200 to less than $1,000, then to $150, and eventually to less than $100.

We began seeking new online revenue sources from subscriptions and advertising, and we tapped resellers such as AOL to bring the CD-ROM encyclopedia to new consumer channels. Because our brand and the quality of our products were recognized and appreciated by educators, we focused on selling subscriptions to Britannica Online to colleges and later to the K–12 market as they came online.

Though we were headed in the right direction, our CD-ROM business was still problematic, because margins continued to be whisper-thin in our competition against the free Encarta. During this period there was one thing we didn’t do: reduce our editorial investment. With our business declining, we could easily have justified eliminating long-tenured editors from a cost perspective. But editorial quality has always been intrinsic to our value proposition, and we knew that it would continue to differentiate us in a growing sea of questionable information.

One or two more years fighting in this market would have further debilitated Encyclopædia Britannica, and perhaps I wouldn’t be writing this. But internet access exploded, as we had expected (and hoped), and the biggest threat to our company, the CD-ROM, was itself disrupted by online access, just when we needed it to be. Britannica was able to reestablish a strong direct relationship with consumers, and our digital subscription business took off.

Our Biggest Opportunity

Our next two major ventures on the internet—a free, ad-supported consumer encyclopedia and a misconceived learning portal for K–12 schools—ultimately bombed, but they allowed us to see that the internet was a far more favorable place to do business than CD-ROM had been. Margins were much better, and we didn’t have to offer huge discounts to win business. When I became president, in 2003, I sought to transform the company once again in light of the opportunities that widespread internet access opened up to us.

What my staff and I realized was that we needed to go beyond reference products and develop a full-fledged learning business. Our growing K–12 customer base helped us by telling us what it needed: affordable lessons and learning materials, linked to the curriculum, that could be used in classrooms and at home. These educators wanted products that included assessment tools and that supported individualized or “differentiated” learning for various grade and reading levels. We knew we had the brand and the editorial resources to meet this need. We saw a looming opportunity in online education, and we caught the wave perfectly. We hired dozens of new people, and we now have curriculum specialists in every key department of the company: editorial, product development, and marketing.

Our product’s value was based on content and production costs—but some customers could get “good enough” content free.

As bad as our timing had been with CD-ROM, it couldn’t have been better for the decision to focus on learning products, because something had arrived that would ultimately remake the consumer market for reference information: Wikipedia.

The Disruption That Wasn’t

I had been following Wikipedia since the launch of its parent project, Nupedia, in 2000. At the time, I thought Nupedia was going nowhere, because it was trying to do exactly the same thing that Britannica was, and I knew how much editorial staff and budget it took to do that. Nupedia didn’t have them.

When Nupedia adopted the wiki technology and became Wikipedia the following year, it seemed to me like an act of desperation. Needless to say, its success was a surprise, not only to me, but to everyone I’ve talked to about it. As Wikipedia’s articles, contributors, and visitors skyrocketed in number, and Google’s search algorithm continued to reward the site with top placement, I understood that this was another game changer for Encyclopædia Britannica.

But far from creating panic, Wikipedia’s success actually reinforced our strategic decision to reduce reliance on consumer reference and accelerate activity in the K–12 market. Like many disruptive innovations, Wikipedia was of lower quality: If it were a video, it would be grainy and out of focus. But consumers didn’t care about that, because Wikipedia has a vast number of entries and easy, free access. We couldn’t compete on quantity or price. Did we believe that consumers preferred our reference material? Yes. Did we believe they were willing to pay for it? Not necessarily.

So instead of getting mired in a competition with Wikipedia, we focused on editorial quality with Britannica Online and used Wikipedia’s quantity-over-quality approach and its chronic unreliability as differentiators in our favor. We knew that Britannica’s long-standing mission to bring expert, fact-based knowledge to the general public met an enduring need for society. This resonated deeply in the education market (it’s now standard practice for teachers to instruct students not to rely on Wikipedia as a reference source), and it helped boost sales there. Today more than half of U.S. students and teachers have access to some Britannica content, and globally we’re growing even more rapidly.

Part of this effort was an aggressive overhaul of our editorial operation, a project we called Britannica 21. We engaged teams of scholars around the world in a wide range of disciplines to review, revise, and refresh the encyclopedia’s content. We changed our editorial metabolism so that we could update content in four hours rather than the weeks it used to take. (Now we update every 20 minutes.) And we created a process for soliciting and using community input to enhance encyclopedia entries.

Instead of getting mired in a competition with Wikipedia, we focused on editorial quality.

By the time Wikipedia took off, we weren’t head-to-head competitors anymore. We maintain a world-class reference source with 500,000 household subscribers, and we take a clearly differentiated approach to informing society, but we’re no longer an encyclopedia-only company.

Coming Disruptions

Over the past five years, we’ve seen 17% compound annual growth in our digital education services business and a 95% renewal rate, while sales of the print version of the encyclopedia steadily declined, from 6,000 in 2006 to about 2,200 in 2011. Producing the bound volumes wasn’t passing basic cost-benefit analysis. It was, frankly, a pain. In February 2012 the management team had to make a call—either get the next revised printing under way, with all the work that would entail, or bring the print edition to an end. We chose the latter.

Today Encyclopædia Britannica is growing on all measures: revenue, margins, staff, content, and reach. We must be ready to adapt and quick to innovate; we must stay attuned to new challenges that could disrupt our business; but we no longer have a stake in the old education model of textbooks and printed classroom curricula. We are creating new digital solutions for math and science and in support of the Common Core State Standards. Here the entrenched players will get disrupted, not us.

There are no guarantees, of course, but I’m confident in Encyclopædia Britannica’s ability to endure in the digital age. That’s because our people have always kept the mission separate from the medium, which has allowed the company to handle one competitive threat after another. As long as I’ve been here, I’ve felt that my job was, first, to honor this deeply held sense of mission and to develop and apply business decisions that support it.

Even now, a year after the last bound volumes of the Encyclopædia Britannica were sold, people ask if we would reconsider and perhaps print limited editions as a kind of iconic collector’s item. The answer is no. We don’t want to be like an old actor trying to hold on to his youth. You get on with the times, and our times are digital. Some people may be nostalgic, but it makes no sense for us to print books. As an organization, we’re over it.

A version of this article appeared in the March 2013 issue of Harvard Business Review.

Jorge Cauz is the president of Encyclopædia Britannica.


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