Organizations that thrive on beating the competition in the existing market space through existing products and services are categorically red ocean strategy believers. They believe in getting their hands dirty, struggle and propagate their business. In doing so, they try to exploit the available demand either by creating greater value for customers at a higher costs or by creating reasonable value at lower costs. This is referred to as value-cost trade off in business terms.
The choice of differentiation for any organization is a two pronged approach that primarily revolves either around the cost or the service.
Microsoft is one of the best examples to define a red ocean believer. All the factors as discussed above are addressed by Microsoft through its Windows and Office products. Having made huge profits, they have succeeded in the 20th century, however, despite this success; their market capital grew only by a meagre 3 percent between 2001 and 2014.
Organizations that consider differentiation by providing innovative services at reasonable costs are blue ocean believers. In this case, the differentiation is optimized by saving costs by way of eliminating and reducing the services that the current industry thrives on and raising the buyer value by way of creating elements that the industry has never offered. The value of innovation that arises from this approach is a blue ocean strategy.
Apple is a best example to define a blue ocean believer. Since the Macintosh, Apple has come up with innovative products to capture the untapped market. Apple still considers the value it delivers to its customers while saving costs through its industrially differentiated offerings. And the result - Apple’s market capital has improved 75 fold between 2001 and 2014 as its sales and profits improved.
In a similar sense, in the current information age, considering the network effect driven by internet of things and connectivity, it is imperative to say that identifying blue ocean strategies are the viable livelihoods for any organization irrespective of the service and business they render. In the current world, limiting and fighting for the current market cap is irrelevant because of the pace at which the nomadic customer is willing to move to a future market. This statement is further strengthened by the recent development in the retail market in China.
Alibaba, the Chinese ecommerce giant, started in 1999 as a business to business portal to connect Chinese manufacturers with overseas buyers. The company today provides consumer to consumer, business to consumer, and business to business services through web portals. It has a payment gateway, as well as shopping and cloud computing services to sustain its business model. In 2014, on China’s singles day, Alibaba reported a sale of over $9 billion in a single day by bringing all its strengths together.
The details listed above make Alibaba a red ocean believer because it has exploited the current market by offering value to customers at a differential cost. At the same time, Alibaba also adopted a blue ocean strategy through its digital strengths such as contextualizing, personalizing, customizing and by reaching customers at the right time and through the right channels etc. Today, having ventured into the banking as well as wealth and investment banking domains, Alibaba has captured US$100 billion in assets. Similar to Alibaba, Tencent is another online giant is building a financial network based on a huge online platform.
Blue ocean strategy has been enticing for the thought leaders, innovators and leaders. With the evolution of the digital world, the mechanism of reaching the nomadic customer is neutralized. This neutralization as seen with Alibaba and Tencent will bring in business offerings that are capitalized not only by the industry’s competitors but also by those competitors who are ahead in the Digital strategy from other industries.