Leaps in Logic — a post about blue and red oceans
Thinking a lot about blue and red oceans these days, which was a topic of a New Venture seminar last week (summary post about that coming up). Still not having completed Blue Ocean Strategy, the book (someone told me, reading the summary would suffice. See slides below), I’m still not entirely sure how to get to a blue ocean. More after the slides.
[slideshare id=61974&doc=blue-ocean-strategy-summary4461&w=425]
I know, from the first few chapters, that you analyse features of a competing business. You list them in some kind of chart and map out how far they go and how to beat them with your own features. Taking the case of gaming consoles, which is as good as any, for the two powerful ones, Playstation 3 and Xbox 360, we would list:
- Online platform (more Xbox360)
- Huge graphical capabilities (more Playstation, but negligible difference)
- Looks better on HDTV
- DVD-drive (huge, unpredictable format-war at launch)
- Games, Games, Games
- Same (more or less) controllers as usual
- Expensive components overall
- Price point in the $500+ (at that time)
- Aggressive marketing strategy, based on above features, targeted mostly at young men.
- Huge multinational corporations with huge budgets
- Lot’s of industry consolidation, virtual and actual
- Added, due to comment: both players may have other motives, apart from pushing their gaming-plaform (e.g. Blu-ray for Sony & Live-platform for Microsoft)
And I could probably go on.
Fighting Microsoft and Sony would require some serious leaps in logic, you would think. You can see that the leap that Sony and Microsoft made was not too far off. It was based on the assumption that any next generation of console would have to be significantly more powerful than the last. And you could see that, them being huge multinational corporations, the thinking was probably that if any drastic industry change could happen (take that format war), they could make it come true. There’s another industry-change that had to happen for both of these to take off like gangbusters, which was that everyone would buy an HDTV. That didn’t exactly happen.
So, essentially, we had several weaknesses, namely that:
- The format war was undecided, confusing customers.
- HDTVs were expensive.
- The consoles themselves were expensive.
- They were eating up each others already small markets (made small by the three preceding factors).
You could also add that they focussed on the same consumer segments as a weakness, but how could they know, right?
Now, if you read into Blue Ocean Strategy, then you would expect for Nintendo to have anticipated these issues. How would that be possible?
For one, they are industry-insiders, just like Sony and Microsoft, so they would have had access to data about production costs of both competing consoles, as well as of the state of HDTVs and HD DVDs, now and in the near future. Two, being a successful console and game producer, they would also have a good grasp on their audience. Three, they would have their own vision and be able to iterate quickly on it.
When you think about it, the leap of logic wasn’t actually happening from those entering the blue ocean, it was from those operating in the red one: Sony and Microsoft.
I wrote this, because sometimes, as a new player on the market, you aim small. You don’t want to upset the big players in the red ocean and instead want to *grow* a blue one. I don’t think blue oceans are grown, they are instead hidden. Growing an ocean is the worst leap of all, because it means changing people’s behaviour. Core-users of Xbox & Playstation haven’t changed one bit, rather you found new customers that weren’t being addressed by those two marketing strategies.
If you do have to make a leap in logic to launch a product, make sure that the price you pay isn’t to expensive.
End of thought.
Vincent
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Tags: Blue ocean strategy, Nintento, Playstation 3, Sony, Wii, Xbox 360
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Having been a player -a small one- (not anymore since 3 years) in the optical media market, I got an interesting -even if narrow- perspective of what meant for Sony the logic leap. I am pretty convinced that Sony’s efforts to push their gaming console (which had to go through the hell we all know before -and after- launch) were to make the PS3 a Trojan Horse for their Blue Ray standard to win the optical media war. I attended a workshop on the subject with one of Sony’s engineering top managers going on pointing out how many Movie Companies were on their side and how the PS3 would have kicked the HD DVD format out of the market. Their hopes in the PS3 working as a trailing force for the format was high also because the concerns for production difficulties costs, media companies had at the time. To produce Sony’s BD was much more harder and expensive than doing the same for HDDVD.
What I said was just to point out that in my opinion the huge waste of money Sony’s went through was partly forced by a broader company view.
At least BD succeeded in being the new HD media format but at which cost? And for sure not thanks to the PS3.
Cheers.
I agree with that, Wiz, and was going to write it too, but didn’t. Basically, taking the stance that Sony is an electronics company and Microsoft a software one, I agree with your interpretation of Sony’s motives (perhaps HDTV sales played a part also), and think that Microsoft pushed Xbox forward, in part, to also push their Live platform, which was, at that time, the next step in Microsoft’s software strategy.
Context is always very important when analysing organisational and individual motives.
You’re not along in describing the Nintendo Wii move as a Blue Ocean move (see some discussion on my Blog:
http://internationalbs.wordpress.com/2008/12/17/too-much-wii-in-this-blue-ocean/).
I’m somewhat intrigued by your “grow” versus “hidden” discussion. I presume by the latter you mean that firms “find” a blue ocean. This is certainly in line with what Kim & Mauborgne are arguing. Any attempt to then enlarge this market space will be presumably a result of one’s initial success. Have I misintrepretted you on this?
Your comment about the value of insider knowledge is insightful. Of course, the challenge is being brave enough to act on such insights and upset the normal order of things in terms of competition.
@Vincent: Xbox was supposed be, or maybe was seen as, a joke on the market with respect with PS2 market share. XBox360 changed that mainly because MS did correct choices and partly because Sony didn’t. These kind of business stories are enlightening for me in two sense. First because they teach you how much even small decisions regarding the product and the market release can decide success or failure (zune?). Secondly you can see how much luck is important. Markets are also very complex systems and sometimes they react more according to chaos theories than to big companies pushes.
I don’t think Xbox was a joke, but definitely an experiment for Microsoft. I’ve been following it from the start, there was also a good article about its gestation in Wired mag a few years ago, worth reading: http://www.wired.com/wired/archive/13.06/xbox_pr.html
Definitely, Microsoft’s vision of connecting devices was a very strong factor, and you see that they have a competitive advantage there. Sony’s & Nintendo’s online application sux by comparison.
About chaos theory; I think that the stock-market is like that, which is why they require the same skill-set for developing algorithms as they don for forecasting the weather. Business-markets are not quite as complex. You have to account for three factors: what customers (will) want, what the competition (will) do, and what you (will) do. Hard, but not impossible.