Red Ocean vs. Blue Ocean. A Practical Guideline on Your Business Strategy

The terms "Red Ocean" and "Blue Ocean" may initially conjure thoughts of geography or marine biology, but in the world of business strategy, they represent distinct market spaces. The analogy with the natural environment demonstrates the characteristics of contrasting market environments. The blue ocean is the name for a newly discovered or created business, defining an uncontested market space, while the red ocean indicates an already existing industry.

They were introduced by Renée Mauborgne and Chan Kim in the early 2000s, marking a significant shift in the business world. They published a book under the name Blue Ocean Strategy that was expanded and updated 5 years ago. They aimed to bring some clarity to the types of market spaces, especially during a new project launch.

Based on real-life studies, the book provides insights into business strategies called blue and red oceans. The authors cover such fundamental issues as creating demand, facing competition, and even conducting market analysis.

To tell the truth, it is quite challenging to come up with the idea of a completely original and unique project. It seems that everything that could have been invented is already there. That is why most SaaS rely on the red ocean strategy when entering an existing market space.

‍Eleken has designed products for startups entering both blue and red oceans. We know what threats and dangers are awaiting a SaaS in oversaturated industries. But at the same time, blue ocean strategists understand that being the first one to establish a new market space and build it up is also a huge responsibility.

If you want to know what's hiding in the depths of red and blue oceans to strategize the most efficient development plan for your SaaS solution, let's look closely at both types of market spaces and see what they have to offer. 

What is the blue ocean and the red ocean strategy?

The main idea behind the names of blue and red ocean strategies is color associations. The blue color is calm and relaxing, symbolizing depth, stability, and even intelligence. For SaaS, such an environment is advantageous and promising, with lots of new opportunities. Blue ocean signifies a new and untapped market space where there are no competitors because you're creating it. 

On the contrary, red color is associated with strong emotions, such as passion, hate, and, of course, love. Such an industry is characterized by strong competition and tension, which makes it difficult for new SaaS solutions to coexist and compete with other projects. A more direct parallel is that of bloody water with fish eating each other.

So, red ocean refers to a known market space with existing demand , characterized by fierce competition among established players. Think of it as a sea filled with competitors vying for the same customers, often resulting in price wars and limited differentiation.

Why choose the red ocean or the blue ocean?

One might wonder why anyone would willingly enter a crowded, competitive market (red ocean) when the blue ocean seems more promising. However, little or no competition in the blue ocean doesn't guarantee success, and effective strategy execution is essential.

In fact, it requires significant effort to develop a product from scratch, create a new market, and stay ahead of potential rivals. Without competitors, there are no reference points for design, pricing, or marketing, making it a blank canvas fraught with challenges.

On the other hand, the red ocean, despite its competition, offers established cases to study and learn from. You can differentiate your product, set competitive prices, and gain market share. Let's delve into the key differences between these two strategies: red ocean and blue ocean.

Red ocean vs blue ocean strategy main differences

When you start understanding the difference between red ocean and blue ocean, a natural question arises: why would you ever dive into the red ocean when blue is so much more promising? Personally, it made no sense to me that people bring new products to an already saturated market. Why do they want to fight with all the competitors that are already successful?

Well, what we often don't get is that the blue ocean does not guarantee you success. Having no competitors doesn't mean you have to try less: it's the other way around. If you are lucky and you have an idea for a product in a blue ocean, there is still so much to do: develop a product from scratch, create a new market, and try to do all of it before someone else outpaces you!

Having no competitors means that there are no other mistakes to learn from. You have no reference regarding design, pricing, marketing… It's a blank page that is so easy to screw up.

To succeed in a blue ocean, products have to analyze the market, do the research, go from problem to solution, and test it well in advance, because when you bring something completely new, be prepared to have a long series of iterations.

Now that you think of it, jumping into a red ocean, where many products have already proven to be successful, is not that much work. You can rely on existing cases, study them, and find what exactly you can do better to differentiate and win over the competition. Or, if you don't have any strong differentiation, you can always get your chunk of the market by setting prices lower.

These are the basic differences between red ocean and blue ocean strategies.

Now, let's get straight to business and compare red and blue ocean market spaces by analyzing their most crucial features.

Market space

What is a market space? To put it simply, it's a unity of sellers and buyers who, accordingly, are purchasing or offering their products and services. For each product, the market space will be different, with its pros and cons. Knowing how the industry for your SaaS application operates is essential for creating a successful development approach and reaching product-market fit.

The red ocean approach applies to the market space that already exists. It has its rules, patterns, and major players. If your SaaS solution debuts in such an established market, you have to adjust to it and try to push through your service. Examples are the smartphone and online messaging tools industries.

With a blue ocean method, you create a market by presenting a completely new and original project. Being a pioneer, you can establish all the rules for this market yourself and make it work for your benefit. However, as an explorer, you have to learn customer behavior, pricing models, and other meaningful things using the trial-and-error method. 

Sometimes, the price for such knowledge can be high, but as an innovator, you need to experiment, take risks, and, what is more important, be ready to lose. With more mistakes comes more experience, so within a short time, you can become a professional player in your market. 

For example, Eleken helped Handprinter, an innovative startup, design its product and website. This company tracks the positive impact on nature and the environment with such little things each of us can do daily, such as choosing a bike over a car or planting a tree. In other words, the app visualizes your carbon footprint and motivates you to decrease it.

This project turned into an enjoyable challenge for the Eleken team. Handprinter started in 2013, but its visitors were not converting into users. Changing the design was rather risky because there were no templates or similar SaaS on the market. With our creativity and passion, we managed to improve customer experience and draw attention to the application. 

Competition

Competition is one of the most significant characteristics of any market. You build the strategy, improve your solution, and even modify the price for your services depending on your competitors, their strengths, and weaknesses. Finally, competition can serve as both stimulation and demotivation for the future development of your product. 

Back to the color analogy, the red ocean method suggests that the market space is oversaturated with various products. Some of them may be of high quality, while others may fail to meet the demands of the end users. Nevertheless, the choice is already big across all the industries , and the red color signifies harsh competition coupled with tense conditions for your SaaS growth.

Zoom, for instance, has become the most popular video conferencing tool within a few months. Its history started many years ago, but this SaaS was mostly used by people in the IT sphere before the coronavirus lockdown. Due to its simplicity and free service, the number of daily users for this product has risen more than 20 times already in March 2020. 

Zoom's story is a vivid example of the red ocean strategy. Despite resisting intense competition for years, this project drew the attention of its end users because it satisfied their major need: a simple and free-of-charge tool for holding conferences online. Therefore, Zoom managed to win the competition in a bloody red ocean.

If you are implementing a blue ocean strategy, the situation is quite the opposite. You introduce a new application and establish a newly developed market space. Consequently, there are no competitors in the beginning. That is why you can play with your SaaS design, functionality, and pricing freely, and do not have to follow any existing rules, because you are the first one to set all the rules.

The blue ocean market space is like a blank page, which can turn into either a disaster or a success. You have to be careful with each step when introducing your product. Fortunately, if you are the only one in the market, it is quite easy to fix your mistakes and start all over again.  

Demand

If your SaaS application makes its first appearance in the blue ocean type of market space, you are building demand from scratch. For sure, it is a very risky and uncertain thing to do. You cannot predict or foresee if targeted users will like the product or just ignore it.

Depending on how effective your service is, the demand will be either growing (and encouraging the emergence of similar products) or lowering (which means that your product didn't meet the requirements of the particular market segment).

Once your SaaS solution is in the red ocean, you are exploiting the already-existing demand. This strategy tends to be safer as you can already look at both companies that succeeded and failed to learn from their experience, often employing cost leadership . Moreover, you can even check their features and pricing plans to build your own product.

For example, Apple decided to operate within the red ocean market for smartphones and launched its first phone back in 2007. Despite a large number of competitors such as Nokia and Samsung, they managed to attract customers and offer the desired features and design. More than a decade after, each new model of the iPhone turns out to be a great success with unprecedented demand. 

Value & Cost

The most common strategy for navigating the red ocean is offering lower prices or adding some value that the competitors don't provide, often involving differentiation and low cost . That way, you manage to gain customers without inventing a whole new wheel.

In a blue ocean, you can't swim without providing a completely unique value. So, does it mean that you can spike up the prices since there are no competitors? Not really. When the market is not established and the demand is not clear, high prices can scare potential customers away. 

Most people are unlikely to spend money on getting something new that they haven't yet felt is valuable. To nurture this emerging market, you have to set prices relatively low.

Netflix is often brought up as an example of a blue ocean strategy. Everybody knows how they disrupted the TV and cinema industry and completely changed the rules. Now, let's see how other fish enter the ocean of Netflix.

While Netflix has an enormous number of films in its catalogue and they are popular in many countries around the world, many new streaming services are coming to the market. Some of them provide a local offer. For example, Filmin hosts independent cinema and serves mainly Spanish audiences. At the same time, they provide lower cost compared to the current market : as of 2022, the monthly price of Filmin is €7,99 vs €12,99 for Netflix.

A similar strategy is taken by niche streaming service Mubi. To fight the genius AI-powered recommendation Netflix system, they use… Human-powered recommendations: they ask curators to make programs and promote one new film a day.

Real-world examples of blue ocean and red ocean strategies

Now, let's look at the examples of famous SaaS products that implemented both red and blue ocean strategies in real life. Both of the projects we will talk about are very successful, so we can learn from their decisions and approaches in different market spaces. 

iTunes — blue ocean strategy 

We can look at the story of iTunes — a product that marked a revolution in both musical and technical spheres. 20 years ago, we did not purchase any songs. What we did was download music from the Internet, put it on CDs, and, quite often, damage both CDs and our media players as a result of such tricky manipulations.

No wonder that all these procedures did not make looking for music or listening to it enjoyable. Indeed, it took time, effort, and reliable friends to exchange CDs with. In 2001, Apple introduced iTunes — a service that has simplified all these processes and appeared to be an irreplaceable one.

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‍iTunes is a great example of implementing a blue ocean strategy. It was the first product of its kind in the market: unreliable in terms of profit and with no analogs. Consequently, it was stimulating a demand itself as nobody could guarantee whether users would pay for such a service if they could download music for free.

With time, iTunes got new features such as playing audiobooks and connecting to special devices for listening to music, such as the iPod. The product keeps changing itself to adapt to the new demands of the customers.

Airbnb — blue ocean strategy

Airbnb is an iconic example of how a simple yet revolutionary idea can create a whole new market space. Before Airbnb, travelers primarily relied on traditional hotels, hostels, or expensive vacation rentals. Renting someone's home or sharing your own space with strangers wasn't a popular or common idea.

In 2008, Airbnb boldly introduced the concept of peer-to-peer short-term lodging, allowing people to rent out spare rooms or entire homes. At first, many doubted whether travelers would embrace staying in the homes of strangers. But Airbnb successfully built trust among users through verified profiles, reviews, and seamless payment methods.

By doing so, Airbnb created an entirely new type of accommodation and reshaped the hospitality industry. Today, this company is a market leader, continuously innovating with new offerings such as Airbnb Experiences and luxury rentals, setting new standards in the industry.

What makes Airbnb’s blue ocean strategy remarkable is that it expanded into complementary areas, offering authentic local tours and unique experiences hosted by locals. This move allowed Airbnb to  attract new users and increase customer loyalty, further differentiating itself from traditional competitors.

Canva — blue ocean strategy

Canva exemplifies an outstanding blue ocean strategy within the graphic design industry. Earlier on, professional graphic design was predominantly accessible only through costly and complex software like Adobe Photoshop and Illustrator, which required extensive technical knowledge and training.

Founded in 2013, Canva saw an untapped opportunity to simplify graphic design, making it accessible to everyone. With an intuitive drag-and-drop interface, pre-made templates, and a freemium pricing model, Canva allowed users to create professional-quality graphics quickly and effortlessly.

As a result, this platform reshaped how people and small businesses approach branding, marketing, and visual content creation. By breaking down traditional barriers, Canva opened up graphic design to teachers, students, entrepreneurs, and social media marketers who couldn't afford or navigate more complex tools.

Their blue ocean approach proved incredibly successful. As of 2024, Canva boasts over 220 million active monthly users and has evolved into a multi-billion-dollar enterprise. Plus, it constantly expands its feature set with elements like video editing, presentations, AI-powered design tools, and collaboration features.

YouTube Music – red ocean strategy 

YouTube Music, probably the newest music streaming service, was announced back in 2015. It seemed quite impossible for this product to compete with Google Play Music and other strong rivals such as Apple Music, Spotify, and Deezer. 

‍Despite the harsh competition and saturated market, music streaming services were in high demand, so YouTube Music decided to give it a try. Additionally, due to the millions of YouTube users, promoting their new project, YouTube Music, was much easier. 

Another interesting thing is that YouTube Music will merge with Google Play Music by the end of 2020. Most users of the last service will likely shift to YouTube Music because they can easily add their old records and playlists to the new application. 

As with all the other products that are using the red ocean strategy, YouTube Music had plenty of examples of how to design the application, what features to offer to the users, and even how to build marketing strategies. Currently, this service already has more than 20 million users. 

Microsoft Teams — red ocean strategy

Microsoft Teams entered an extremely crowded market in 2017, competing head-to-head with Slack, Zoom, Cisco Webex, and many other established platforms for communication and collaboration. The odds of succeeding in such an oversaturated space seemed slim.

Yet, Microsoft managed to quickly turn Teams into a major player. By leveraging their massive existing user base of Office 365 subscribers, Microsoft positioned Teams as an integral part of a larger ecosystem. Users didn't have to pay extra for it, as Teams came bundled with Office subscriptions, making adoption effortless.

Additionally, Microsoft quickly replicated and improved upon many features of competitors, offering  integration with popular tools such as Outlook, Word, and Excel. As a result, Teams rapidly grew its user base to more than 250 million active users by 2021, proving that even in fiercely competitive markets, a smart red ocean strategy can still achieve success.

Microsoft Teams also capitalized on the significant shift toward remote and hybrid work environments due to the global pandemic. Understanding this pivotal moment, Teams enhanced video conferencing capabilities, introduced virtual breakout rooms, and improved meeting security features.

Spotify — red ocean strategy

When Spotify entered the music streaming market in 2008, the landscape was already saturated. There were platforms like Pandora, Napster, and Apple Music, and digital music consumption was already widespread. It seemed nearly impossible for a new service to make significant waves in such a competitive environment.

Spotify, however, identified gaps in user experience and service quality. They prioritized simplicity, personalization, and an unmatched library size. With recommendation algorithms that deliver customized playlists, such as Discover Weekly and Daily Mix, Spotify has transformed how listeners discover new music.

One crucial move that propelled Spotify forward was its adoption of the freemium model. Unlike many competitors who relied on paid-only subscriptions, Spotify attracted a vast audience by offering a free tier supported by ads.

Users enjoyed almost full access to Spotify’s massive music library without initially paying, allowing the company to rapidly grow its user base. Spotify then effectively converted many of these free users into over 260 million paid subscribers, offering attractive premium features such as ad-free listening, offline playback, and enhanced audio quality.

How to shift from red ocean to blue ocean strategy

While red ocean markets may feel safe due to their predictability, at some point, fierce competition and limited differentiation become overwhelming. Shifting to a blue ocean strategy requires careful planning and execution, offering a fresh chance for sustainable growth through the simultaneous pursuit of innovative ideas.

Here’s how you can effectively move your SaaS from red to blue waters:

1. Identify unmet customer needs

A critical first step in shifting your strategy is conducting thorough market research and interacting directly with your customers. Engaging closely with your audience through targeted surveys or interviews helps reveal hidden opportunities.

Pay attention to recurring complaints or requests overlooked by existing players. Often, your most loyal customers hold insights that competitors have missed.

2. Challenge existing industry assumptions

To move toward a blue ocean, you must rethink assumptions that your industry holds as absolute truths.

Are standard pricing strategies or service delivery methods truly optimal, or merely habitual? For instance, traditional software licensing models gave way to subscription-based pricing, unlocking entirely new revenue streams. Questioning these norms might reveal ways to deliver unexpected value.

• Revisit pricing models — could you simplify or rethink them?
• Assess typical customer experiences — is there a radically different approach that could delight your users?

3. Explore adjacent market segments

Another pathway to discovering blue ocean opportunities involves looking beyond your immediate industry. Adjacent market segments frequently offer untapped potential that your business could uniquely serve.

For instance, examine complementary industries or overlooked user groups. Once identified, adapt your product to these new segments by carefully customizing your offerings, thus creating demand in a previously unexplored area.

4. Develop a clear and compelling value proposition

Your shift into a new market demands a powerful and distinct value proposition. To make your business model irresistible:

• Emphasize unique benefits instead of just listing features.
• Steer clear of direct competitor comparisons to highlight your uniqueness.
• Clearly showcase advantages that customers have never experienced before.

5. Test and iterate rapidly

Before fully committing to your blue ocean strategy, validating your concept through rapid testing and iteration is crucial. Build a prototype or MVP and gather initial user feedback promptly. By quickly refining your offering based on this feedback, you ensure the product aligns closely with real market needs.

This agile approach minimizes risks and maximizes your chances of success.

To sum up

Both red and blue ocean strategies have their pros and cons. The secret to understanding which market space will be the most beneficial for your SaaS is knowing the needs of your customers and utilizing a strategy canvas .

If you know that despite large competition, you can still offer a valuable and useful SaaS solution, you can enter the red ocean bravely and even learn from your rivals. Read our article for even more hacks and approaches to rock the red ocean strategy.

If you are sure that your brand new service with new analogs will hit the industry and create huge demand, dive deep into the vast blue ocean. Our blog post on blue ocean strategy with more useful techniques and advice will help you not to get lost and survive in a newly-discovered market space.

And if you're considering implementing either strategy for your business and need expert guidance or design solutions, Eleken is here to help. Contact us today to discuss your unique business needs and tailor a strategy that sets you on the path to success. Your blue ocean strategic move should serve as a compass guiding your business toward its goals, and Eleken can be your trusted partner in charting that course.