What Is Blue Ocean Strategy

WHAT IS BLUE OCEAN STRATEGY?
Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open up a new
market space and create new demand. It is about creating and capturing uncontested market space,
thereby making the competition irrelevant. It is based on the view that market boundaries and
industry structure are not a given and can be reconstructed by the actions and beliefs of industry
players.
The Blue Ocean Strategy
This strategic planning model is a departure from the typical management exercise that
focuses on number crunching and competitive benchmarking. Here are key points of the Blue
Ocean Strategy:
 It’s more than theoretical. Some strategic planning models are based on theories that don’t
quite pan out during go-to-market executions. In contrast, Blue Ocean Strategy originated from
a study that took place over 10 years and analyzed company successes and failures in more
than 30 industries. It’s based on proven data rather than unproven ideas.
 The competition is irrelevant. Taking a Blue Ocean approach means your goal isn’t to
outperform the competition or be the best in the industry. Instead, your aim is to redraw industry
boundaries and operate within that new space, making the competition immaterial.
 Differentiation and low cost can coexist. The Blue Ocean Strategy argues that consumers
don’t have to choose between value and affordability. If a company can identify what consumers
currently value and then rethink how to provide that value, differentiation and low cost can both
be achieved. This is termed “value innovation.”
 You have a framework to test ideas. The Blue Ocean Idea Index is part of the overarching
strategy and lets companies test the commercial viability of ideas. This process helps refine
ideas and identify opportunities with the most potential, minimizing risk.
Cases/Examples of Blue Ocean Strategy
iTunes
With the launch of iTunes, Apple unlocked a blue ocean of new market space in
digital music that it has now dominated for more than a decade.
Apple observed the flood of illegal music file sharing that began in the late 1990s,
enabled by file sharing programs such as Napster, Kazaa, and LimeWire. By 2003
more than two billion illegal music files were being traded every month. While the
recording industry fought to stop the cannibalization of physical CDs, illegal digital
music downloading continued to grow.
With the technology out there for anyone to digitally download music free, the
trend toward digital music was clear. This trend was underscored by the fast-
growing demand for MP3 players that played mobile digital music, such as Apple’s
hit iPod. Apple capitalized on this decisive trend with a clear trajectory with the
creation of iTunes in 2003.
In agreement with five major music companies—BMG, EMI Group, Sony, Universal
Music Group, and Warner Brothers Records— iTunes offered legal, easy-to-use, and
flexible à la carte song downloads. By allowing people to buy individual songs and
strategically pricing them far more reasonably, iTunes broke a key customer
annoyance factor: the need to purchase an entire CD when they wanted only one or
two songs on it. iTunes also provided a leap in value beyond free downloading
services via sound quality as well as intuitive navigation, search and browsing
functions.
The unprecedented value iTunes offered triggered customers the world over to flock
to iTunes with recording companies and artists also winning. Under iTunes they
receive some 70 percent of the purchase price of digitally downloaded songs, at last
financially benefiting from the digital downloading craze. In addition, Apple further
protected recording companies by devising copyright protection that would not
inconvenience users—who had grown accustomed to the freedom of digital music in
the post-Napster world—but would satisfy the music industry.
Today iTunes offers more than 37 million songs as well as movies, TV shows, books
and podcasts. It has now sold more than 25 billion songs, with users downloading
on average fifteen thousand songs per minute. iTunes is estimated to account for
more than 60 percent of the global digital music download market. While Apple has
dominated this blue ocean for more than a decade, as other online stores zoom in
on the this market, the challenge for Apple will be to keep its sights on the evolving
mass market and not to fall into competitive benchmarking or high end niche
marketing.
Bloomberg
In a little more than a decade, the U.S.-based financial information provider,
Bloomberg became one of the largest and most profitable business information
providers in the world. Challenging its industry’s conventional wisdom about which
buyer group to target, Bloomberg created a blue ocean in the financial information
services industry.
Until Bloomberg’s debut in the early 1980s, Reuters, Dow Jones and Telerate
dominated the online financial information industry, providing news and prices in
real time to the brokerage and investment community. The industry focused on
purchasers —IT managers—who valued standardized systems, which made their
lives easier.
Bloomberg saw that it was traders and analysts, not IT managers, who make or
lose millions of dollars for their employers each day. Profit opportunities come from
disparities in information. When markets are active, traders and analysts must
make rapid decisions. Every second counts.
So Bloomberg designed a system specifically to offer traders a leap in value, one
with easy-to-use terminals and keyboards labeled with familiar financial terms. The
systems also have two flat-panel monitors so that traders can see all the
information they need at once and built-in analytic capability with the press of a
button.
By focusing on users, Bloomberg was able to create a blue ocean of strong and
profitable growth. With this shift in focus Bloomberg could also see the paradox of
traders’ and analysts’ personal lives. They have tremendous income but work such
long hours that they have little time to spend it. Realizing that markets have slow
times during the day when little trading takes place, Bloomberg decided to add
information and purchasing services aimed at enhancing traders’ personal lives.
Well before the internet offered such services, traders could use Bloomberg online
services to buy items such as flowers, clothing, and jewelry; make travel
arrangements; get information about wines; or search through real estate listings.
By shifting its focus upstream from purchasers to users, Bloomberg created a value
curve that was radically different from anything the industry had seen before. The
traders and analysts wielded their power within their firms to force IT managers to
purchase Bloomberg terminals. This is an example of path three of blue ocean
strategy’s six paths framework that suggests that companies can gain new insights
into unlocking blue oceans by looking across the chain of buyers in an industry and
shifting their focus to a previously overlooked set of buyers.

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WHAT IS BLUE OCEAN STRATEGY?

The Blue Ocean Strategy

Cases/Examples of Blue Ocean Strategy

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