Deflation

There is an intersting article by Randall Stross in the NY Times telling the story of the rise and fall of Microsoft's Encarta, an encyclopedia first marketed in 1993. Here are some bits that show the pricing profile:

Early in the project’s history, a focus group of prospective customers was convened, and participants said they would happily pay $1,000 to $2,000 for a multimedia encyclopedia on CD-ROM. But at the time, no one foresaw the collapse of prices in the information economy. When Encarta was finally ready, Microsoft set its price at $395, the same price as other CD-ROM encyclopedias that had beaten it to the market.

Encarta sold poorly, gaining only 3 percent of the market six months after its release, according to Microsoft. But the leader was Compton’s, which sold its CD-ROM Interactive Encyclopedia, nominally priced at $395, for just $129 to any customer who claimed to own a competing product. Retailers did not ask to see proof, and the boxes flew off the shelf.

Microsoft’s sales managers were frantic, begging the team to give them a “$99 Encarta.” The Encarta team relented, but said it was to be only a temporary reduction for the 1993 holiday sales season. Martin Leahy, a Microsoft sales manager, told any colleague who would listen, “You realize, don’t you, the price is never going up again, right?” It never did.

...

Over time, the price of the product fell even more. Earlier this year, Microsoft sold Encarta as a downloadable product for $29.95; most recently, it was marked down to $22.95.

...

Encarta would have been discontinued long before now if it hadn’t extended its natural life span by finding a market in international spots beyond the reach of the Internet, Mr. Corddry said. “That bought Encarta some time,” he added.

Encarta could not compete, however, against the Web and Google.

In 15 years it went from a rather expensive (but cheap compared to a printed encyclopedia) to inexpensive to discontinued. Now that is Schumpterian "creative destruction".