Blue Ocean

Professors W. Cahn Kim and Renée Mauborgne came up with the common sense (but unique) concept of using a blue ocean as a financial metaphor, in their book appropriately called Blue Ocean Strategy, published in 2004.

In the book, they describe red oceans as all the industries currently in existence. Their products are well-known and popular, but competition runs rampant, hence the red, or bloody, ocean. In order to gain more market share, they have to outperform their rivals with better prices or better quality of service, plus a heck of a lot of advertising. As the industry gets even more crowded, profits can decline.

A blue ocean, on the other hand, represents an unknown market that has little or no competition. It might be a brand new company, or one that’s been around for a while but is creating a new product set or services.

Think of Starbucks, which entered a rather crowded coffee shop market (who would pay $4 for a cup of coffee?), but offered tea, smoothies, and fancy coffee drinks, as well as comfortable seating, to encourage customers to hang around for a while. And, uh...buy more coffee.

Another blue ocean would be eBay, which started a totally new industry of online auctions. Then there’s Cirque du Soleil, which did not try to imitate or compete with traditional circuses, but invented their own category by blending opera and ballet...and losing the performing animals. Rather than fighting over a limited set of customers, a new demand was created.