What does 'Blue Ocean' mean

"Blue ocean" is a slang term for the uncontested market space for an unknown industry or innovation. Coined by professors W. Chan Kim and Renee Mauborgne in their book "Blue Ocean Strategy: How to Create Uncontested Market Space and the Make Competition Irrelevant" (2005), blue oceans are associated with high potential profits.

BREAKING DOWN 'Blue Ocean'

In an established industry, companies compete with each other for every piece of available market share. The competition is often so intense that some firms cannot sustain themselves. This type of industry describes a red ocean, representing saturated market share bloodied by competition.

To avoid costly competition, firms can innovate or expand in the hope of finding a blue ocean. A blue ocean exists where no firms currently operate, leaving the company to expand without competition.

Examples of Blue Ocean Strategies

In their book, Kim and Mauborgne offer 150 blue ocean strategies that have been undertaken by companies over about 100 years. Ford and Apple are two examples of leading companies that created their own blue oceans by pursuing high product differentiation at a low cost, which raised the cost of competition.

Ford Motor Company

In 1908, Ford Motor Company introduced the Model T as the car for the masses. It only came in one color and one model, but it was reliable, durable and affordable. At the time, the automobile industry was still in its infancy, but there were around 500 automakers producing custom-made cars that were expensive and unreliable. Ford created a new manufacturing process for mass-producing standardized cars at a fraction of the price of other cars. The Model T's market share jumped from 9% in 1908 to 61% 1921 when it officially replaced the horse-drawn carriage as the principal mode of transportation.

Apple Inc.

Apple Inc. found a blue ocean with its iTunes music download service. Although billions of music files were being downloaded illegally each month, Apple created the first legal format for downloading music in 2003. It was easy to use, providing users with the ability to buy individual songs at a reasonable price. Apple won over millions of music listeners who had been pirating music by offering higher-quality sound along with search and navigation functions. Apple made iTunes a win-win-win for the music producers, music listeners and Apple by creating a new stream of revenue from a new market while providing more convenient access to music. Apple iTunes accounts for 60% of the global digital music market.

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