What Is Blue Ocean?

What Is Blue Ocean?

Let me explain what blue ocean means in the entrepreneurship world. It's a term from 2005 that describes a fresh market with hardly any competition or barriers for innovators. Think of it as a vast, empty ocean full of market options and chances that pop up when a new industry or innovation emerges.

This term comes from INSEAD professors Chan Kim and Renee Mauborgne in their book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant, published in 2005. They define blue oceans as markets ripe with high profit potential.

Key Takeaways

From a marketing perspective, a blue ocean is an unexploited or uncontested market space you can tap into. Chan Kim and Renee Mauborgne coined it in their book. Companies in blue oceans are often the innovators of their era. These stand in contrast to red oceans, which are all about brutal competition in crowded markets. In their book, Kim and Mauborgne discuss around 150 blue ocean strategies used by companies over a century.

How a Blue Ocean Works

In an established industry, firms battle for every bit of market share, and the fight can be so tough that some don't survive. That's a red ocean—a saturated market stained by competition.

Blue oceans are the flip side. Many companies innovate or expand to find these markets with no real competition. Entrepreneurs are particularly drawn to them.

Blue ocean markets have traits that innovators and entrepreneurs crave. A true blue ocean has zero competitors. As the leader, you get first-mover perks, lower marketing costs without rivals, freedom to set prices, and room to evolve your offering in different ways.

Important Note

If you're a business leader with innovative products or services, spotting blue ocean markets opens up endless opportunities for you.

Blue Ocean vs. Red Ocean Strategies

Unlike a blue ocean, a red ocean is a cutthroat arena with many players vying for space. New entrants have to fight hard for any profits in such a crowded field.

Companies in red oceans use strategies different from those in solo markets. They don't create demand; they chase existing customers with marketing, price cuts, or better products. Take car insurance: most providers offer similar stuff and compete by dangling better deals.

Examples of Blue Ocean Companies

A blue ocean is tied to a specific time and place. Ford and Apple exemplify companies that built their blue oceans through high differentiation at low cost, raising barriers for others. They defined emerging industries that others later copied.

Ford Motor Co.

In 1908, Ford launched the Model T as the car for everyone. It was just one color and model, but reliable, durable, and cheap.

Back then, the auto industry was nascent, with about 500 makers crafting expensive, unreliable custom cars. Ford revolutionized production to mass-produce standard cars at a much lower price.

The Model T's market share soared from 9% in 1908 to 61% in 1921, replacing horse-drawn carriages as the main transport.

Apple Inc.

Apple hit a blue ocean with iTunes for music downloads. While illegal downloads were rampant, Apple introduced the first legal option in 2003.

It was user-friendly, letting people buy single songs affordably. Apple converted pirates by offering better sound quality, search, and navigation. This created wins for producers, listeners, and Apple through new revenue and easier music access.

Netflix

Netflix is another blue ocean example, reshaping entertainment in the 2000s. Instead of joining video rental wars, it started with mail-order rentals and then pioneered subscription streaming.

Others followed, so now new streaming entrants face a red ocean, not blue.

The Bottom Line

A blue ocean is an entrepreneur's ideal: an unexplored market with no competition, where you can launch products and grab a big share. But it's not always smooth. You have to build the market, draw customers, and develop untried products. That's why true blue ocean wins are rare.

What Are the Steps to Implement a Blue Ocean Strategy?

In Blue Ocean Shift, Kim and Mauborgne outline a five-step process for shifting to blue ocean. Here's the gist: Start by picking a point and assembling your team. Assess your current situation, including strengths and weaknesses. Envision possibilities by spotting pain points and targeting non-customers. Figure out the path with alternative options and redraw market boundaries. Finally, model it big-picture and test quickly.

Why Is a Blue Ocean Strategy Difficult to Implement?

It's tough because if it were easy, it'd already be done. Identifying untapped markets or reinventing them is high-risk and doesn't always succeed. When it does, though, the payoffs are huge.

What Was JCPenney’s Failed Blue Ocean Strategy?

In 2011, under CEO Ron Johnson, JCPenney botched a blue ocean attempt. Struggling financially but seen as a value leader, Johnson tried shifting to upscale with boutiques and exclusive items, ditching clearances and coupons that kept loyal customers coming.

Worse, he rolled it out to all 1800 stores without testing. In under 18 months, JCPenney dropped from the S&P 500, and Johnson was out.