Jason Bell

@j_jason_bell

Blue-Becoming-Red Ocean

Often people want to do something truly original — something nobody has ever done. We know though, that most new things are not that new. They just feel new, and that is all that matters.

About two weeks ago, I sat in the business school at USC listening to a presentation about some research. The research found that Kickstarter projects in highly competitive areas make more money than those in less competitive areas.

What does this mean? It’s hard to be certain, but I believe strongly that it comes from the hotness of markets. When a new type of product succeeds, profit seekers realize there is money to be made in the area. They riff on the original successful product and start related campaigns. In other words, market demand sends a signal, and those who heed it get a payoff. This is true despite lots of others doing the same thing. (The authors of the study interpreted it differently. They believed increased competition spurred campaign owners to work harder and be more innovative. I don’t find that explanation credible.)

The implications of this finding, and of my interpretation of it, are important.

The Smell of Blood

A well-known book, Blue Ocean Strategy, argues that

companies can succeed by creating “blue oceans” of uncontested market space, as opposed to “red oceans” where competitors fight for dominance, the analogy being that an ocean full of vicious competition turns red with blood.

There is nothing wrong with creating a Blue Ocean, and the book is a nuanced treatment of the subject. Over time, though, we’ve reduced the idea to a dichotomy: red/blue ocean. I think this hides many important opportunities that live between red and blue.

The idea is very simple: a new market signals an early success, and people rush to compete. The time between the first signal and the point of saturation is not necessarily short. In some cases, the time can even be extremely long. That period of transition is an attractive time to enter the market, because there is some evidence of demand, but the demand hasn’t been exploited to death. The Kickstarter research noted above illuminates the fact that, even in a fast moving environment, companies can have their cake and eat it too.

The Freerider MVP

My good friend recently shared this article with me:

The title says everything. The lesson is that product success is often public knowledge. That knowledge is valuable.

I’m not advocating for people to rip each other off. What I’m saying is that MVPs are not always strictly necessary. Or, speed is a substitute for market testing. MVPs are pitched as the fastest, easiest way to gain information, but that’s not always the case. Most information about which products are succeeding is non-excludable, in the technical sense of economics. That is, nobody can stop you from obtaining and using (most) information about market successes.

One approach, which some may find more palatable than the one above, is to find successful new products and advance them to the next logical iteration. This saves the work of validating the new market, but preserves some differentiation. Chaim Pikarski, CEO of C&A Marketing, does this routinely and has built a thriving business from it:

Pikarski and his crew look out for successful new products on Amazon and read reviews. When they see something like “I love this but I wish it had X” they try to make a version with X and sell it. They succeed very often.

Money or Pride

In order to succeed in a Blue-Becoming-Red Ocean, you mainly need speed. Don’t get me wrong, there are lots of ways to succeed, and some of them don’t require speed, but for this strategy you have to be fast.

You probably need something else, too. You need to care more about money than pride. After speaking with people about the above example, the common reaction is discomfort. We all seem to hope that shrewd, conniving tactics like those employed by the The Stress Cube team above won’t work. But if we’ve learned anything from Donald Trump, it should be that stuff like that does work. It works well.

The Amazon Whisperer is much more honorable, but even that approach is not widely adopted. I think it is partially because it’s not as easy as it sounds, partly because people don’t think of it, and partly because it doesn’t feel as cool as creating something totally new.

The Takeaway

Even if we don’t adopt these exact strategies, we can learn from them. They tell is that many opportunities inhabit the transition periods between blue and red oceans, that you don’t always have to do your own MVP, and that speed can substitute for some creativity.

More by Jason Bell

Topics of interest

More Related Stories