When Goliath Fell Prey To David................ The Britannica Saga

No competitor, big or small, direct or indirect should be considered trivial as one never knows who amongst them is the David who needs to take just one shot at you to make your empire crumble to dust; a leeson learned the hard way by Britannica. Lets take a look at it here.

In 1768, three Scottish printers began publishing an integrated compendium of knowledge – the earliest and most famous in the English-speaking world. They called it Encyclopaedia Britannica. Since then, Encyclopedia Britannica has evolved through fifteen editions and to this day it is regarded as the world’s most comprehensive and authoritative encyclopaedia.

In 1920, Sears, Roebuck and Company, an American mail-order retailer, acquired Britannica and moved its headquarters from Edinburgh to Chicago. Ownership passed to William Benton in 1941, who then willed the company in the early 1970s to the Benton Foundation, a charitable organization whose income supports the communications programs at the University of Chicago. Under its American owners Britannica grew into a

serious commercial enterprise, while sustaining its reputation as the world’s most prestigious and comprehensive encyclopaedia. The content was revised every four or five years. The company built one of the most aggressive and successful direct sales forces in the world.

By 1990, sales of Britannica’s multivolume sets had reached an all-time high of about US$650 million. Dominant market share, steady if unspectacular growth, generous margins, and a two-hundred year history all testified to an extraordinarily compelling and stable brand. Since 1990, however, sales of Britannica, as of all printed encyclopaedias in the United States, have collapsed by over 80 percent. Britannica was under serious threat from a new competitor: the CD-ROM. The CD-ROM came from nowhere and destroyed the printed encyclopaedia business. Whereas Britannica sells for $1,500.00 to $2,200.00 per set (depending on the quality of the binding), CD-ROM encyclopaedias sell for $50 to $70. But hardly anybody pays even that: the vast majority of copies are given away to promote the sale of computers. With a marginal manufacturing cost of $1,50 per copy, the CD-ROM as a freebie makes economic sense. The marginal cost of Britannica, in contrast, is about $250 for production plus about $500 to $600 for the salesperson’s commission.

Judging from their inaction, Britannica’s executives initially seemed to have viewed the CDROM encyclopaedia as an irrelevance, a child’s toy, one step above video games. As revenues plunged, it became obvious that regardless of the quality, CDROM encyclopaedias were serious competition. Britannic executives reluctantly considered manufacturing their own CD-ROM product. Months passed, and sales continued to plummet. In response, the company eventually put together their own CDROM version of the encyclopaedia.

The CD-ROM version engendered yet another crises: a revolt by the sales force. Even if priced at a significant premium over its CD-ROM competitors such as Encarta, the CDROM version of Britannica could not possibly produce the $500 to $600 sales commission its traditional counterpart produced, and from which it would obviously detract sales. Indeed, a CD-ROM version would have demanded a completely different channel. To avoid a revolt by the sales force, Britannica executives decided to bundle the printed product with its digital counterpart. The CD-ROM was given free to buyers of the multivolume set. Anyone who wanted to buy just the CD-ROM would have to pay $1,000.00. The decision appeased the sales force briefly, but did nothing to stem the continuing collapse of sales. Losses mounted. In 1995, the Benton Foundation finally put the company up for sale. For nearly eighteen months, investment bankers tried to find a buyer. Microsoft declined, as did

Technology Media and information companies.

Finally, in 1996, financier Jacob Safra agreed to buy the company, paying less than half of the book value. In less then five years, one of the greatest brand names in the English-speaking world, with a heritage of more than 200 years, was nearly destroyed by a cheap, shiny litle disk.