Monday, July 27, 2015

Treading the Uncharted Waters

Blue ocean strategy defined recently has existed since entrepreneurs have existed. Industries that follow Blue ocean strategy emerge out of Red Ocean - a pool of big and small companies where survival is based on being the strongest by integrating the supply chain, aggressive acquisitions and mergers, marketing, promotions, price wars - many small and big companies fighting for the same piece of pie. Classic examples are some mainstream airlines.

Though, Google, Facebook, Apple have been a monopoly if I might say so. Why? It is interesting to see the similarities in each. They adopted the Blue Ocean Strategy by not following their competitors. Facebook was not the first social networking site launched, Google was not the first search engine, and Apple was not the first to launch MP3 player. By tapping into new markets these companies have acquired large volumes, followed a successful business model, reduced their costs and price from customer.

Google identified that the existing search engines selected words by frequency; the search engines were like web portals. Ford understood the importance of horse-drawn carriages discussed in the article “Blue Ocean Strategy”, Google understood the missing feature of easy to use search functionality that would serve user needs. This superior and simpler interface attracted large volume of users making competition "irrelevant" - high costs or losses that the competition may face in trying to enter the same market or because the customer’s cost of shifting is high. Google’s costs reduced as their business model evolved; on the one hand is free user-friendly intelligent search engine, on the other hand 90% revenue that comes from advertisers. This is a win-win situation. The value it has added makes it close to impossible for competition to enter the same market.

Facebook created a “social graph”. Initially a dating site that went viral as everyone was using it. Network always had a value. Facebook took it to another level. It replaced Orkut, which depended upon organic growth - a network of trusted friends. But Facebook allowed inviting anyone, integrated games, poking, smart recommendations, feeds along with privacy features etc. It did not fight Orkut, it just created a unique platform, which was hard to replicate (people were already using it – high entry barriers). Facebook reduced its costs by the sheer volume of people, which allows them to make profits from ads and invest more keeping it valuable.

Apple’s iPod is a similar story- capitalized on the need to stream music – integrated iTunes to download individual music, integrated with recording companies. No existing companies provided this value and customers had to buy the whole album even if they wanted a particular song. They analysed this gap and increasing trend of downloading illegal music, tapped into this market, reduced price over time leaving no scope for competition.

The future will like be dominated by Blue Ocean Strategists as implementing unique ideas become easier and less costly because of digital disruption, E-Lance explosion and prediction becoming more accurate with data analytics.

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