This week’s Trends looks at the search engine space and ends by suggesting a shift in search is on the horizon. Search and the related pay per click advertising have been among the hottest industries on the net. There are very few billion dollar brands online, but the majority that do exist have a strong play in search. Unlike years past though, the search space no longer looks attractive. The face of the search space has changed. The energy is different… it no longer feels the same despite the innovations and improvements.
It was in thinking about the changing landscape of search for the Trends article that I was reminded of an article titled “Blue Ocean Strategy” that published in the October 2004 Harvard Business Review. The article is based on the book, of the same name, written by W. Chan Kim and Renee Mauborgne. At its core, Blue Ocean Strategy entails creating demand rather than the fight over existing demand. This week’s Thoughts attempts to summarize the attractive if not at first paradoxical findings and assertions of Blue Ocean Strategy.
The first key to understanding Blue Ocean Strategy is deciphering the terminology. Blue oceans refer to industries or markets not in existence, where no direct competition exists. Their counterpart, red oceans, refers to those clearly defined market spaces where companies fight within well-understood boundaries. In blue oceans success comes from creating demand. In red oceans success comes by outdoing rivals. In their study, the authors looked at 150 blue ocean creations in more than 30 industries and found that the creation of blue oceans came about by not trying to compete in already existing market spaces. The creating of blue oceans can certainly lead to completely new industries such as eBay did with online auctions, but more importantly in my opinion, their data points out that the majority of blue oceans are created by existing companies operating in red oceans. The existing companies created the blue ocean by altering the boundaries of the existing industry. Also of importance, in the majority of cases, is the fact that the cause of the blue ocean was not due to technology innovations but innovations in value. Technologies are often involved, but in most cases the specific technologies used were already in existence elsewhere.
Authors Kim and Mauborgne illustrate the concept and value of blue ocean creation with Cirque du Soleil. Its growth occurred in “an unlikely setting.” As they point out, the circus industry has been in seemingly terminable decline. Other forms of entertainment have, for a while, been growing more popular and more accessible. Alternatives to the circus now exist that never did before, one of them being an unlikely competitor, the Playstation. The animals that provided a main draw in the past were now drawing only negative publicity having fallen out of favor in the current culture. Talent has become harder and more expensive to find and doesn’t come with the name recognition other non-circus performers do. Given all this, how then did Cirque du Soleil increase its revenues by a factor of 22 over the last ten years reaching top line numbers that took Barnum and Bailey 100 years to achieve? A key to Cirque’s success, they point out, has to do with an older tagline that stated, “We reinvent the circus.”
What is paramount to realize is that Cirque did not grow its business by directly competing within the confines of the existing circus industry or by stealing its customers from Ringling. Cirque focused on the experience and in doing so illustrates one of the tenets to blue ocean creation – one should not use the competition as a benchmark. As the authors point out, “Instead it created uncontested market space that made the competition irrelevant.” It pulled in a whole new group of customers who were traditionally not customers of the existing circus industry – adults and corporate clients that more often than not could be found at theater, opera, or ballet. Besides not having to compete for clients directly, Cirque also found an audience that was accustomed to paying ticket prices multiples higher than those of the normal circus so long as they received an unprecedented entertainment experience.
At the time of Cirque’s debut, other circuses forced on one-upping the others. These circuses tried to get better clowns and better animal handlers. They focused all their efforts on increasing their share of the dwindling market by taking actions that only increased cost without a corresponding increase in revenues. Cirque on the other hand focused on offering a show with the fun and thrills of the circus but with the intellectual sophistication and artistic richness of the theater. They got rid of the animals, the three rings, and promoting individual performers as stars. They focused on what the market valued – the clowns, the acrobats, and the tent. The worked on offering the best of the circus and the theater, an integrated experience which had fewer costs than traditional circuses and increased profits due to higher ticket prices and the ability to due simultaneous shows. As the creators of Blue Ocean Strategy point out, “From within the red oceans of theater and circus, Cirque has created a blue ocean of uncontested market space that has, as yet, no name.”
If the concepts behind a blue ocean strategy interest you, both the article in the Harvard Business Review and the book due a better job at elaborating the specifics than I can. What they illustrate though is that it is possible to fuel growth while driving down costs and increasing value for customers. It is possible to grow without directly targeting a competitor. And it isn’t technology that creates blue oceans. It is the people at the companies. It is solid leadership that makes the right strategic moves. Consciously or not, many in our industry have created blue oceans and now reap the rewards. For those of us that haven’t, perhaps this can be a new perspective as we look to grow our businesses and attempt to determine the best way to do so.
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