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.
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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.
Jay Weintraub
