Tuesday, April 14, 2015

When Red Oceans Clear

                In their famed article Blue Ocean Strategy, W. Chan Kim and Renee Mauborgne illustrate a false paradigm prevalent in business that the most appropriate means to success is through direct opposition with one’s competitors, when a more beneficial strategy is to chart out an unoccupied business niche and then fill it solely and without competition. I feel a worthwhile consideration in this theory is to gauge the “red oceans” left behind after the success of the blue ocean pioneers sends up an economic signal, drawing competition from either fellow defectors or new entrants. In my example, I will consider the market of home entertainment, specifically movie rentals.
                In 2004, Blockbuster employed 60,000 people, many of whom worked in one of 9,000 stores. The company had a market value of $5 billion with annual revenues of $5.9 billion.[i] Six years later, Blockbuster filed for bankruptcy protection. Four years after that, the last of the stores closed, as did its fledgling rent-by-mail operations. The rapidity of this downfall was caused by – not just one, but – many blue ocean visionaries. In the late-1990s, cable companies began offering video on-demand, including the ability to rent new release movies without ever having to leave your couch. In 1997, Netflix began their service of DVD renting through the mail. In 2002, Redbox began placing thousands of self-rental kiosks in high-traffic retail locations. With the ever-growing prevalence of computers in daily entertainment, live video streaming has greatly changed the way in which people watch both movies and television, and served as the final nail in the Blockbuster coffin, as well as many other video rental franchises.[ii]
                But while this market shift meant the end for the industry titan, it’s interesting to consider what is now left behind: a still potentially fertile market with the long running price-setter suddenly removed. And besides, even the bluest ocean still contains predators: the boom of video streaming is being increasingly accompanied by questions regarding copyright ownership. Redbox kiosks are limited in space, human interaction, and complementary movie-viewing goods. Even Netflix faces limitations in title selections that a brick-and-mortar video store would not. Furthermore, when evaluating market health and projecting the future, analysts tend to make overly simplistic assumptions, such as: convenience will always win out over charm, ignoring the actuality that browsing through a well-lit, well-stocked, popcorn-scented video rental store on a weekend night has a utility all of its own. This phenomenon is being demonstrated by video chain Family Video, who is bucking the commonly accepted forecast of the video rental store industry by opening dozens of new stores in recent years, and seeing increased sales in 29 of its 30 years of existence.[iii] They accomplish this through customer service and pricing structures intended to build customer loyalty, a feat not accomplishable by the new automated market.
                To summarize, the standard American business model is one of competition. In the Blue Ocean Strategy article, Kim and Mauborgne illustrate the value of setting out into unchartered waters beyond competition. It is my contention that through this phenomenon, the “red oceans” left behind become devoid of the competition that made them perilous initially, creating a blue ocean in their own right.

[i] "The Sad End Of Blockbuster Video: The Onetime $5 Billion Company Is Being Liquidated As Competition From Online Giants Netflix And Hulu Prove All Too Much For The Iconic Brand." International Business Times. 5 Dec. 2013. Web. 14 Apr. 2015. <http://www.ibtimes.com/sad-end-blockbuster-video-onetime-5-billion-company-being-liquidated-competition-online-giants>.
[ii] In 2000, there were nearly 28,000 video rental stores in America; by 2014, this figure was down to a little over 6,000. (Ibid, Graham)
[iii] "If You Saw Family Video's Profits, You'd Open a Video Store Too." Voices. Web. 15 Apr. 2015. <http://voices.suntimes.com/business-2/grid/family-video-rental/>.

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