From what I remember the Encarta engine was similar to Hypercard, Director, other early hypertext/multimedia authoring systems. HTML took off because it was portable, simple, no-one owned it, and it was similar enough to SGML that academics could grasp it. Microsoft was famously slow to embrace the internet so a push for a Microsoft standard hypertext markup language would have been out of character, and even if they had tried I doubt it would have taken off - they later tried to bend HTML to their will and failed.
In fact according to
this helpful Quora answer it seems that Encarta's text was written with SGML, so unless Microsoft tried to gather support to replace HTML with SGML they would have found it hard to displace the simpler system, and given that SGML is an ISO standard they would still have had to gradually turn it into Microsoft-specific SGML, and get everybody else to follow them. Given that so much of the internet was and remains built on Linux / Unix / Apache etc I can't see it working.
I first got on the internet in 1995, when I was at university - I was part of the September after the September that never ended - but such was the speed of development at the time that I was way behind the curve. There's a good little article
here that gets across the sheer speed with which the world wide web went from being an academic exercise to Pets.com. Microsoft wasn't exactly IBM but even so it all happened too quickly for a company that size to react.