Killing Giants – Wikipedia’s Role in the Demise of Microsoft Encarta

“People today seek and consume information in considerably different ways than in years past. As Microsoft’s goal to deliver the most effective and engaging resources for today’s consumer, it has made the decision to exit the business.” March 2009 Microsoft Statement, regarding the shutdown of Encarta.

Giant killer 1.0

Encarta was launched in 1993, as a CD based encyclopaedia. Compared to the traditional bookshelf-bending multi-volume encyclopaedias it was revolutionary. Integrating sound and video as well as using hyperlinks to connect related stories, Encarta was heralded as bringing Encyclopaedias in line with the information age. Sold for around $100 it was many times cheaper than its print competitors (which sold for between $500 and $2,000).

Encarta and similar CD based products initiated the decline in print based competitors. Britannica‘s revenues dropped from $650 million in 1991 to $325 million in 1996. Its own CD version, released after much soul-searching in 1995, cost a whopping $1,200. Consumers reacted as expected – buying Encarta in droves. Britannica later dropped the price to $200 but it looked like too little, too late.

Giant killer 2.0

Just like Encarta and similar products spelt the end of the traditional print encyclopaedia, Wikipedia‘s arrival in 2000 – then known as Nupedia – spelt the beginning of the end for Encarta. Rather than limited to content produced by costly editorial teams and official contributors, Wikipedia’s sources were infinite; its pool of contributors was made up of anyone, anywhere who wanted to add anything. They were paid nothing and given no writing credits. Rather than periodic updates, Wikipedia was updated continually – and instantly. This open model allowed Wikipedia’s English language version to exceed over 2.7 million entries as of March 2009 – compared to 62,000 in Encarta.

Microsoft had launched an online subscription edition of Encarta in the mid 90’s and in 2005 it began to allow registered subscribers to write in to suggest changes and updates to articles. But by this time Wikipedia had become an almost unstoppable phenomenon.

Good enough

There have been questions about the validity of information on Wikipedia. In 2005 the journal Nature conducted a study that found 162 mistakes out of 42 Wikipedia general science articles… compared to 123 in Britannica. Certainly Wikipedia’s open source model could allow all sorts of inaccurate, misleading and biased information to be found. However these criticisms have been made of traditional published encyclopaedias for decades. The reality is that the peer-review structure of Wikipedia means that errors are often rectified quickly, and controversial articles can be locked so that only registered members can make changes, minimising the likelihood of editorial vandalism.

Wise users of Wikipedia would know not to assume everything on the site as 100% correct and should double-check facts and opinions. But given Wikipedia offers accuracy not too different from commercial rivals – for free – its easy to see how their value proposition is easy to justify.

The future of content

What does this say for the future of content? Clearly media owners of all forms from record labels to movie studios, book publishers to journalists have observed how piracy has impacted their bottom line. An even bigger problem seems to be unfolding today in the form of user generated content. Rather than simply copy and replicate content produced by a publisher, we are seeing an increase in everyday people spending their own time contributing to information. Whether it’s an article about quantum mechanics, Australian Cattle Dogs or conjoint data analysis there are plenty of experts out there willing to tell you more.

Why might these people go to the effort of sharing their knowledge? Maybe it’s an innate human desire to feel good in sharing your wisdom with others. Maybe it’s bragging rights amongst their peers. Whatever it is, it’s prevalent and widely accepted: Wikipedia is now the 9th most popular website in Australia.

What’s evident is that Microsoft and other encyclopaedia producers misinterpreted what factors consumers want. Sure, back in the day a nice encyclopaedia set looked great on the bookshelf, but was it really worth $2,000? What consumers want is information, and more specifically they want it to be accessible, relevant and up-to-date. Accuracy and validity are important, but these seem to be factors where “good-enough” is sufficient.

Staying in the race

With so much free content out there, often of very high quality, it will become increasingly difficult to demand that consumers pay for content. What could Microsoft have done to stay in the encyclopaedia game? A logical step – and one currently being taken by Britannica – is to recognise that its brand name has value and sought to extend beyond basic encyclopaedias to a wider range of educational and reference material.

A more extreme move may have been to open up Encarta as a hybrid of editorial and user generated content. To compete with Wikipedia it would have to be free, but Microsoft would still achieve a return with an active community of customers (and knowing their details and cross-selling to them as it does so well with its other online applications). By allowing anyone to access such a service, free-of-charge, and to make contributions that are automatically posted but reviewed by fellow users and editorial teams, Encarta would have been able to maintain a compelling product.

Sticking to old ways will ultimately lead to failure and it will be hard to navigate through such a rapidly changing environment. At the strategic level it is critical that content producers and publishers continually think beyond established norms, frameworks and models and focus on the underlying value proposition. At an operational level Product Managers must determine what customers want – and how and where they want it – and then design products and services that satisfy these wants.