Sharks are intimidating animals. Like a lot of people, I remember my first experience watching Jaws as a child. Spielberg’s film-making, along with John Williams’s iconic score stayed in my mind as I tried to go to sleep that night. Such a simple concept of a movie, and to this day, it still holds up.
Some companies dominate industries like sharks. They are predators that go unchallenged in their market space, and those who do challenge them stand very little chance of succeeding.
In their book, Blue Ocean Strategy, authors W. Chan Kim and Renee Mauborgne argue that “cutthroat competition results in nothing but a bloody red ocean of rivals fighting over a shrinking profit pool.” Instead of competing in this so-called “red ocean,” companies should look for ways to reinvent the industry and get themselves into uncontested, growing markets, or so-called “blue oceans” — where profits increase by avoiding risk.
Blue Ocean Business
Utilizing the “blue ocean” strategy, iTunes entered the market during the recording industry’s struggles to combat illegal downloading of music. They created a whole new category of music sales that solved the industry’s problems while addressing the demand for individual tracks rather than entire albums.
Cirque de Soleil challenged circus acts that traditionally catered to children and instead created a “blue ocean” experience that featured some of the world’s best performances.
Decades before this book was published, Henry Ford swam in a “blue ocean.” Up until his Ford Model T, automobiles were expensive and customized for the wealthy minority who could afford it. Ford standardized his car, thus making it affordable for the masses and not competing with the high-priced customized auto market.
Blue Ocean Sports
This blue ocean strategy has found its way into professional sports as well. The Red Sox-Yankees rivalry has been part of baseball lore since the famous (or infamous) trade that sent Babe Ruth to the Bronx in 1920. From 1920 through 2000, the New York Yankees won 26 World Series titles. The Boston Red Sox? Zero. During that same period, the Yankees beat the Red Sox 857 times and were defeated by Boston only 635 times. Things started to turn in the new century, however. Yes, we know how the story ends — the Red Sox famously beat the Yankees on the way to their first World Series championship in 86 years in 2004. In this new century, Boston has won four World Series championships, and the Yankees won once, in 2009.
The Yankees were able to stave off Boston’s success for quite some time, but the Red Sox (though still trailing head-to-head against New York) have figured out a formula to win. They’ve had miserable seasons in between their championships, but they have managed to quickly turn their prospects around and mount a campaign towards the World Series crown.
The Red Sox tried to compete with the Yankees by buying players that would help them outperform their free-spending rivals but always seemed to hit a wall. Instead of continuing to swim in that red ocean, they embraced the “blue ocean” of analytical baseball (popularized by Bill James’ Moneyball). The result was that World Series crown.
Much like the New York Yankees of the late 90s, the co-CEOs of Research in Motion (RIM) dominated the mobile device market in the years following the launch of the BlackBerry. RIM’s founders — practitioners in hubris as we’d find out — rode out their revolutionary product’s success for several years. What happened next was very predictable; their competitors would create products of their own and challenge BlackBerry’s dominance.
In May of 1999, RIM was valued at $11 billion and continued expanding in the early 2000s. There were warning signs; however, that RIM would not be able to hold its own in an increasingly competitive market, especially as the market shifted to smartphones. As the iPhone joined the scene, Blackberry did not have an adequate response to it.
Apple, rather than competing with RIM in their space, decided to create the iPhone, which featured the same benefits of the BlackBerry but allowed for touch-screen capability and wireless telephone services. BlackBerry’s blue ocean quickly turned red.
Netflix VS. Blockbuster
The same thing famously happened to Blockbuster in the early 2000s. Blockbuster sat atop the video rental industry when Reed Hastings — the founder of Netflix — traveled to Blockbuster’s headquarters to propose a deal where both companies would help each other out (you can find more info on that in this Forbes article). Netflix’s model — specifically the subscription model that did not rely on late fees for revenue — shifted the market so rapidly, that Blockbuster was not able to catch up.
Netflix is facing the same BlackBerry problem now. When they ousted Blockbuster about a decade ago by finding its blue ocean, there were no other services like Netflix’s around. Today, though, the company’s “blue ocean” is turning red. For years, their streaming services have had to compete with the likes of Amazon and Hulu. Additionally, last month, Netflix reportedly lost $17 billion in value after failing to reach its forecasted amount of subscribers. This ocean will only get redder as Apple and Disney launch their streaming services — and in Disney’s case, its valuable original content with it.
Netflix has proven itself in the past, however, to identify blue oceans in its market. As it faces the reddest ocean its seen since the days of Blockbuster’s dominance, it will have to unleash that skill once again. Otherwise, it will risk trying its luck wading in shark-infested waters.