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A Modern Application of the Blue Ocean Strategy

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Michael Brown

June 20, 2016
Bowery Capital

In today’s rapidly changing landscape, there is a desperate clamor for pursuing the correct business strategy to either stay ahead of the competition or successfully emerge into the industry. Among the sea of countless strategies that have so far been proposed, there are two that have come to dominate the current school of thought: Christensen’s Disruptive Innovation, and Kim and Mauborgne’s Blue Ocean Strategy. In this blog, I will analyze Apple’s current position in its markets and touch on its future possible strategies.

In 1997, Professor Clayton Christensen published his most famous work, The Innovator’s Dilemma, describing a new concept now known as disruptive innovation. Christensen cites this as the main reason why successful businesses today are susceptible to failure, despite their advanced technologies and marketing strategies. Their failure is due to the fact that they tend to ignore the markets most susceptible to disruptive innovations, since the potential profits from such a market is generally too small for an already well-established company to take notice of. One of the two common types of disruption is ‘low-end’, a situation that arises in which the rate of technology far exceeds consumer expectations, enabling innovators to target consumers who are adverse to the high complexity of the incumbents’ products. From here, to increase profit margins the disruptor will have to target the consumers willing to pay a bit more, and therefore must innovate. Eventually, it will reach the highest-paying customers and be able to compete with the incumbents.

In 2005, authors W. Chan Kim and Renee Mauborgne published the landmark Blue Ocean Strategy, outlining the novel concepts of blue and red oceans. In a red ocean, competition already exists, and consumer demand is a constant. Businesses have already identified the target audiences and actively compete for them. In such an ocean, the losses of one firm are mirrored in the gains of another, resulting in a zero-sum situation. While incumbents tend to dominate this industry, there is little opportunity for emerging companies to establish a foothold. On the other hand, a blue ocean is discovered when an entirely new market space has been created, thereby effectively disregarding previous pressures from competition. Companies that discover blue oceans are free to become leaders, as they are uncontested in all their endeavors.

These days, people view Apple drastically different from how they did a decade, or even a few years back. Although it still achieves amazing profits from its iPhones, Apple is quickly losing market shares to competitors in both the smartphone and tablet markets. On top of that, there is the common perception that Apple’s product releases are merely improved copies of previous versions, suggesting an end to Apple’s extended period of inhibited creativity. Certainly, many signs point to the necessity for Apple to re-evaluate its strategies, as a company is defined not by its past successes, but by its current strategies, and the key decisions that it will be making in the upcoming years. Apple’s past successes can be largely attributed to Steve Jobs’ rigorous strategic discipline, and his ability to narrow viable product lines down to a handful. Strategies are about not just deciding what to do, but also what not to do.

Or maybe Apple should choose to once again discover a blue ocean, as they had when they released the iPod and Mac. Of course, while discovering a viable blue ocean can be immensely rewarding, it can be also be disastrous if not pursued correctly. Given its current position in the markets, Apple may not feel the need to embark on such a risky endeavor; Kim and Mauborgne state that a successful blue ocean can keep the company buoyant for a couple decades.

I believe Apple should continue focusing on becoming a disruptor. One of Apple’s unique qualities is that it has never been afraid to disrupt its own existing products with novel ones, a term coined ‘Creative Destruction’. Unlike Microsoft, which had previously curtailed potential products for fear of it cutting into existing sales, Apple has never been afraid of cannibalization of its own products, seen prominently with the interference the iPad brought to Mac sales.

On such a matter, CEO Tim Cook expresses a similar sentiment, “I’d rather we cannibalize ourselves than have someone else do it for us.” Apple should not be afraid to become the underdog once again and disrupt another industry.