It is an increasingly competitive industry for those in the software development sector. However, despite the fact that many new companies are entering the market, the IT business has seen sustained growth in recent years, which suggests that there is still room for innovation and creativity.
Therefore, how can we establish our own presence in this vast and intricate universe? Examining the Red Ocean and Blue Ocean, which are two of the most fascinating metaphors for markets and strategy, could provide us with an answer.
Watch Out for the Scarlet Seas
Red Ocean is a concept developed by Chan Kim and Renee Mauborgne, which describes highly competitive and established markets in which dominant brands have a strong presence. A good example of this is the brown cola market, where both Coca-Cola and Pepsi have achieved their full market potential.
In order to succeed in a highly competitive market, a company must be willing to go the extra mile in order to gain an advantage over established competitors, even if this requires significant resources.
Developing a new social media app to compete with the likes of Facebook, Instagram and Twitter is one example. It is theoretically possible to create something that is objectively better than these options, yet still fails to gain traction.
Social networks as a business model present a complex challenge. Not only must one compete with the technology and user experience of large organizations, but also the existing user base invested in developing relationships with other users on current platforms. If migrating to a new platform requires starting from scratch, it is probable that most people will be unwilling to make the switch.
Due to natural selection, there is a distinct hierarchy in the cloud computing industry. Amazon Web Services, Microsoft Azure and Google Cloud are considered to be the main players, leaving little room for other competitors to succeed. This fierce competition has resulted in an environment that has been described as “red with blood”, a metaphor for the intensity of the rivalry.
Competition for resources in red waters is intense, making life difficult for less dominant species. Even if they are able to establish a safe haven, they may still be vulnerable to predation by apex predators. When they reach a certain size, they become more noticeable and risk being devoured by larger fish.
For example, take the app Snapchat as an example. It began as a small social network with a unique idea (material that would be available for a set amount of time, thus increasing the fear of missing out) and experienced rapid growth within a few years. What happened after that? In 2023, a product called Instagram Stories launched with a comparable concept and quickly became very successful.
In turbulent waters, entrepreneurs are at risk of having their discoveries rapidly replicated by those with greater resources, thereby eliminating any potential competitive advantage.
It is certainly possible to succeed in a highly competitive market. However, it can be challenging to take advantage of a market opportunity when other companies are already offering a similar service, particularly in a digital environment where large companies may have significant control.
In the Midst of the Blue Oceans
So, if “red oceans” refer to meeting an existing need, what are “blue seas” then? Then, how about we take a look at a couple cases?
- Rather than visiting a physical store and placing an order for a book, with the associated wait time for the distributor to ship it, one may consider setting up a business that facilitates online book orders and delivers them directly to a customer’s door. This is essentially what Amazon does.
- Imagine a service where you can rent DVDs online, sending them back via email rather than going to a store. You could even watch the movie online, similar to a YouTube video, eliminating any waiting time. This is what Netflix offers.
- It is intriguing to consider the development of a programme that is compatible with multiple platforms, enabling users from around the world to communicate and share content. This is similar to online chat rooms and the previous Blackberry Messenger, but for all mobile devices. Examples of this would be WhatsApp and Telegram.
The common factor linking all of these organizations is their pioneering spirit. They did not simply meet existing needs, but rather they took advantage of new technologies to create unique solutions and create entirely new industries.
A ‘blue ocean’ approach looks to avoid competing directly with existing market structures. It involves creating a product which renders them obsolete, if only for a period of time, by creating something that they cannot replicate.
DuckDuckGo is a prime example of how a business can gain a foothold in a market dominated by a larger player, such as Google. Despite the apparent risk of launching its own search engine, DuckDuckGo identified an opportunity to provide users with the ability to search the web while remaining anonymous.
Google has become a major earner through the collection of data and would face a significant financial loss should they discontinue this practice. With this in mind, they cannot hope to compete with services that do not collect or store any user information.
You may be wondering, “Is a search engine a new technology?” The answer is no. However, DuckDuckGo offers something different: anonymity.
It is evident that even the most powerful organizations have limitations. While these major players may be successful in competitive industries, their size and structure can impede them from dominating all markets. This is analogous to a shark, which is unable to consume the smaller fish that inhabit more confined areas.
It is advisable to conduct market research before embarking on any new venture or initiative. By understanding the existing market and providing answers to two simple questions, it may be possible to identify and develop profitable opportunities.
- Is there anything that the present crop of products and services doesn’t address?
- Why aren’t other outlets reporting on it?
If there is potential for success, but it is yet to be seized, it is likely that established market leaders will already be competing in that area in the future. Alternatively, as with WhatsApp, a larger competitor may acquire the business.
If the potential of a product is yet to be fully realized due to structural issues, such as the creation of a privacy-focused search engine, then it could be argued that it is a product with long-term potential.
If you wish to gain further insight into the concept of ‘Red Seas and Blue Oceans’, I suggest reading ‘Blue Strategy’ by W. Chan Kim. This is an excellent book that provides invaluable advice for both inexperienced and experienced businesses.
