The world of software development is an extremely competitive market. With more startups joining every single day, it seems that there is very little room for growth and innovation. Of course, we all know that’s not true, as we’ve seen the IT industry grow year after year with no sign of stopping anytime soon.
So, how can we create our little space in this cluttered world? One solution is to look at one of the most interesting metaphors for markets and strategy: the Red Ocean and the Blue Ocean.
Be Wary of the Red Oceans
Chan Kim & Renée Mauborgne coined the term Red Ocean to describe highly competitive and well-established market spaces where big brands have a strong dominance. A good example is the brown cola market, which is already capped out by Coca-Cola and Pepsi.
Red oceans are ruthless and the main goal of any business that chooses to compete in them is to beat the other companies, a task that is almost impossible for newcomers who don’t have the capital to face off against the big players.
An example of that would be creating a new social network app to compete against Facebook, Instagram, or Twitter. In theory, you could make something that’s objectively better than any of the former and still fail.
Social networks in particular are complex business endeavors. Beyond the technology and user experience of big companies, you have to contend with the fact that an established user base has invested time and effort in forming connections with other users in existing platforms. So, if migrating to another platform means starting anew, then odds are most users will stick to what they already know.
Red oceans are the kind of ecosystem where survival of the fittest means that there is a very clear hierarchy in place. At the top of the food chain, you have the apex predators (AWS, Azure, and Google in the cloud computing business) while the rest of the fish have to compete for scraps. This cutthroat competition turns the ocean “red with blood”, which is where this metaphor gets its name from.
In red oceans, the smaller fish have to fight twice as hard to get market share. And even if they manage to carve a safe space, the threat of the apex predator still looms over their heads. Grow enough to get noticed and the big fish might decide to devour you whole.
Take Snapchat for example. It began as a niche social network with a simple idea (disappearing content, thus reinforcing FOMO) and saw exponential growth in a matter of a couple of years. And then what happened? Instagram stories came along in 2016 with the same basic premise and quickly dominated the market.
That’s the kind of risk startups have to contend with in red oceans. It’s only a matter of time before small innovations are reverse engineered by other competitors with more resources, at which point, you lose whatever edge you had in the market.
Is it impossible to succeed in a red market? Of course not! But it’s hard to exploit an existing demand when other companies are already filling that space, and that’s twice as true in an environment that’s dominated by tech giants.
Sailing the Blue Oceans
So, if red oceans are about fulfilling a demand that’s already there, what about blue oceans? Well, let’s look at a few examples:
- Instead of going to a bookstore and having to place an order for a book and wait until the distributor sends it to the store, you could create a business that lets people order books online and then send them directly to your house. That’s Amazon.
- Imagine that instead of going to a video rental store you could order your DVDs online, and then return them by email. Or even better, why wait when you could watch the movie over the internet just like a YouTube video? That’s Netflix
- What if you create a cross-platform application that lets people communicate and share multimedia with users from all over the world? Like chat rooms or the old Blackberry messenger but available for all smartphones?. That’s WhatsApp and Telegram.
What all these examples have in common is that these companies were trailblazers. Instead of satisfying a demand that was already there, they created and captured a new demand, they jumped at the opportunity of adopting new technology to create new products, and give rise to new markets.
In a blue ocean strategy, you don’t face the competition headfirst. Instead, you make them irrelevant by creating a product that they can’t copy, at least in the short run.
The search engine DuckDuckGo is a great example of carving a blue ocean in a market that was dominated by a giant predator like Google. In theory, creating a new search engine would be suicide for any startup, but what DuckDuckGo realized was that there was a market for anonymous web searches.
A huge part of Google’s profits comes from data gathering, and they can’t change that without hurting their bottom line. So, there is no way that the tech giant could compete with a service that doesn’t store people’s data.
You might be saying “well, but a search engine isn’t a new technology… is it?” – and you are right! But here is the kicker: DuckDuckGo isn’t offering a search engine, what they are offering is privacy.
The lesson here is that apex predators aren’t unbeatable. They might be unrivaled in red oceans, but much like a shark can’t eat the small fish that live in tight spaces, industry giants are limited by their scope and structure.
As such, new projects or startups would do well to do market research before they take their first steps. Blue oceans are created by understanding the current market and answering 2 very simple questions:
- What is something that isn’t currently covered by solutions available in the market?
- Why isn’t it covered by others?
If the possibility is there, but it hasn’t been exploited yet, then there is a very good chance that you’ll have to face an industry giant in the long run. Or like it happened to WhatsApp, you might end up getting swallowed by the bigger fish.
Now, if the possibility is there, but hasn’t been fulfilled due to structural problems (such as the aforementioned privacy-centered search engine), then what you have in your hands is a product that will stick around for a long time.
There is a lot to be said about red oceans and blue oceans, and I would advise anyone interested in the subject matter to check out Blue Strategy, an amazing book with a lot of advice for startups and established businesses alike.
