Red Ocean vs. Blue Ocean. A Practical Guideline on Your Business Strategy
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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, while the red ocean indicates an already existing industry.
They were introduced by Renée Mauborgne and Chan Kim in the early 2000s. 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 a market.
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, we 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's red ocean and blue ocean
The main idea behind the names of blue and red ocean strategies is color associations. The blue color is calm and relaxing, it also symbolizes 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 an existing market space, 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 blue ocean?
One might wonder why anyone would willingly enter a crowded, competitive market (red ocean) when the blue ocean seems more promising. However, the absence of competitors in the blue ocean doesn't guarantee success. 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.
Conversely, 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 strategies.
Red ocean vs blue ocean: strategies
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 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 outpaced you!
Having no competitors means that there are no one else’s 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 in 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.
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 which already exists. It has its rules, patterns, and major players. If your SaaS solution debuts in such an environment, you have to adjust to it and try to push through your service. Examples are the smartphones or 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, to design their product and website. This company tracks the positive impact on nature and the environment with such little things each of us can do daily 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 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 your future development of the 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, 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 corona 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, 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 either into a disaster or 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.
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. 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. 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 the potential customers away.
Most people are unlikely to spend money on getting something new that they didn’t yet feel as 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 well 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 the catalogue and they are popular in many countries around the world, many new streaming services come on the market. Some of them provide local offer. For example, Filmin hosts independent cinema and serves mainly Spanish audiences. At the same time, they provide lower cost: as of 2022, monthly price of Filmin is €7,99 vs €12,99 for Netflix.
Similar strategy takes 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.
Comparison of SaaS products using red and blue ocean strategy
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 downloading music from the Internet, putting it on CDs, and, quite often, damaging 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.
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 will pay for such a service if they can 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.
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 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.
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.
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 strategies 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 strategy should serve as a compass guiding your business toward its goals, and Eleken can be your trusted partner in charting that course.