The blue ocean is big, open, and empty - an ideal opportunity space for businesses. This is the premise of blue ocean strategy

Creating blue oceans can:

• Increase revenue potential
• Maximize profit
• Increase the likelihood of securing outside investment, such as venture capital funding

Blue oceans are markets that haven’t been created yet.

Rather than competing directly in a crowded market, or red ocean, blue ocean strategy advocates for using value innovation to create a new market with no competition.

The new market doesn’t need to be entirely unique. Similar to re-segmenting a market, a new customer segment can be created in an existing market, such as by:

• Creating a more luxurious version of a mass market product (Cirque du Soleil vs Barnum & Bailey)
• Creating a Mass market version of a luxury product (Android vs iPhone)

Creating a a new market creates a “blue ocean” of opportunity. Companies building a blue ocean are creating a previously untapped market without competitors - at least initially. This means that blue ocean companies also need to create customers since they don’t exist yet.

Blue ocean strategy is extremely lucrative. Blue ocean launches account for just 14% of launches, but 61% of profits. This is according to the “Blue ocean strategy” study by Kim, WC & Mauborgne, R in 2015 published by Harvard Business School publishing. Contrast that with the 86% of launches categorized as red ocean that are generating only 39% of profits.

Companies with focused strategies eliminate or reduce emphasis on some factors of competition compared to the rest of their industry. Increasing emphasis on some factors and cutting costs elsewhere is an important element of value innovation.

To create a blue ocean, companies must move beyond the competition-based strategies of red oceans. Tools like the Strategy canvas and Four Actions framework can help.