A hailstone in the summer heat

Michael Arrington offers an insightful look at what’s happening to the Encyclopedia Britannica. Wikipedia is, of course, the Britannica’s summer heat, so the company has chosen to make its content available for free to what it defines as web publishers. Interesting move, but it won’t stop the company’s business model from melting under the blazing sun.

According to Comscore, for every page viewed on Brittanica.com, 184 pages are viewed on Wikipedia (3.8 billion v. 21 million pave views per month). In short, they are a classic example of the Innovator’s Dilemma (see also the Music Industry).

…Instead of going free and opening up to all, they’re using the new program to simply price discriminate. Give people who may link to the site free access. Everyone else has to pay. So in effect they’re aiming to be half pregnant – they want the benefits of web linking but don’t want to give up the subscription fees from the fools who continue to pay them.

What Michael doesn’t mention is that the Britannica was advertiser-supported and free before the internet bubble burst, which I wrote about extensively in the Feburary 2005 essay, The Devaluation of Information:

One of the most visible warriors in this free/paid debate has been the Encyclopaedia Britannica. During the Internet bubble days of 1999, the Britannica got a ton of recognition for the bold move of making its pages free to consumers online and adopting an advertising model. Tom Panelas, Director of Corporate Communications for Britannica, says they bought into the free information argument.

“The theory behind the model was traffic,” he remembers. “If you could get enough traffic, you could make it work. We did that. We had 8-10 million unique visitors a month. We were doing all the things right, and it seemed to be working.”

Then in 2000, the bottom dropped out of the market. Ad rates plummeted, and the Britannica’s experiment stopped working. “Of the different aspects of our revenue model,” Panelas says, “advertising was the most important ingredient, so when rates fell, it broke the model.”

The company did extensive research and concluded that the advertising model wasn’t sustainable, and that belief remains today. Panelas adds, “We believe that good quality, reliable information that is well-edited is somewhat rare and therefore valuable. People should be willing to pay for that.”

The Britannica online boasts a couple of hundred thousand subscribers, according to Panelas, many of them coming through third-party bundling of products and services, something he believes we’ll see a lot more of in the future.

The Britannica has weathered many storms in the last 15 years, as technology has rewritten their business. Even now, the online “Wikipedia” — which is written and edited by the public — poses a new threat, but the company has faith in its model. “This stuff is constantly changing,” Panelas admits, “and the way customers understand this is changing all the time.”

He’s quick to add, however, that “we live in a society that’s too sophisticated to completely abandon empirical and rational thinking.”

In a Postmodern world, such assumptions can be dangerous, and this is what’s at the heart of the free-versus-paid argument. The rational Modernist world is the one with the institutional doorways and permission gates, but that world is fading, and our culture is rapidly moving in a different direction. It’s a “new wine” thing, and it requires new wineskins.

In the three plus years since I wrote that, we’ve moved down the postmodern stream quite a distance, and the Britannica now finds itself in need of a different business model. Why they don’t just go back to the innovative status they enjoyed in 1999 is beyond me.

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