Value innovation is what creates blue oceans

Key takeaways

  1. Finding and creating a blue ocean market (a business that turns non-customers into customers, rather than competing for the same customer) is about creating a new value proposition, not technological innovation.
  2. Technology is not why Uber and Starbucks are now worth billions, they created offerings that appealed to non-customers (people not using taxis or people not going to retailers for coffee).
  3. You thus cannot rely on your technology or R&D group to create new opportunities, instead you need to find a new value proposition.

Value innovation is what creates blue oceans

I have written and spoken many times about Blue Ocean strategy, which is effectively turning non-customers into customers, rather than competing for the same customer. One problem many companies often make, though, is confusing product innovation for creating a blue ocean. A recent post, Confusing Technology Innovation with Market-Creating Strategies, highlights why R&D is not synonymous with market creation.

The success of two companies highlight how you can create a blue ocean without creating a product innovation. The first example is Starbucks. Starbucks was able to take a commodity business, selling coffee, and create a new industry by focusing on the customer experience. The post also points to “JCDecaux, which unlocked a blue ocean in outdoor advertising by providing and maintaining “street furniture” for municipalities in exchange for prime stationary downtown locations for ad displays. These strategic moves opened new markets without any bleeding-edge technology.”

Even technology companies that have created blue oceans have not necessarily done it by creating cutting-edge technology. Bleeding edge technology did not make Uber into a multi-billion technology company, instead it was applying relatively straightforward technology to traditional industry and using it to appeal to new customers. Same can be said for Wikipedia, which put information online but did not need new technology to do it but by combining existing technology with a traditional business, it created a product for a new range of customers.

The post points out that value innovation creates compelling new markets, not technology innovation. “Successful new products or services open market spaces by offering a leap in productivity, simplicity, ease of use, convenience, fun and fashion, or environmental friendliness.” Thus, you need to look at your business, your customers and non-customers and create value for them, rather than relying on your tech team to come up with a game changing innovation.


The Exporter’s Dilemma

Many companies, particularly in the game space, have failed to match their local success in international markets. Ones that believe they are particularly data-driven have often had the worst results. The biggest single contributor is that these companies experience false negatives, negative results that they then extrapolate to the opportunities outside their home market. I refer to this phenomenon as “The Exporter’s Dilemma,” as a homage to Clay Christensen’s seminal work, The Innovator’s Dilemma.


Parallels with The Innovator’s Dilemma

In The Innovator’s Dilemma, Christensen shows that successful companies have trouble innovating because they know their customers too well. Innovating is about creating products that initially appeal to a new customer, which then evolves to penetrate the existing market. Existing customers do not find the new offering compelling, thus the company believes it is not an opportunity.

Successful companies also have trouble innovating because they are successful and they have built a structure that does not support small opportunities. Thus, an innovative opportunity may only contribute one percent or less to the bottom line, and thus the company does not put any resources into growing the disruptive innovation. Instead, a small competitor takes the opportunity and grows it into a business that then undercuts the established companies existing business.

There are parallels to both these issues when building an international social games business. Great games have already optimized for the core market. A top social game team is going to be a top team because they look at the metrics for their existing players and evolve the game to generate the best metrics from those players. That could include features that will perform well or licensing IP that resonates with the players.

When the company expands internationally, features that a Frenchman might like may be unattractive to an Australian. The Frenchman might like a feature where players work together to create beautiful art, while the Australian might prefer that by cooperating you create a race course. With IP (intellectual property), some of the strongest IP in one market may not have value in other markets. While a science fiction game in the US around the Star Trek IP would have a strong fan base, the same IP would not generate any traffic or appeal in Italy. Continue reading “The Exporter’s Dilemma”

%d bloggers like this: