Blue Ocean Strategy: Non-Customers

One of the primary components of a successful six-path study is the focus on customers and non-customers. Non-customers, which are divided into three tiers, each of which has a specific definition, are especially important.

Paraphrasing from the book, the first tier of non-customers are current customers who are getting ready to leave. The second tier are people who consciously decide against your product. The third tier are people in distant markets.

Let's bring that back to earth using the the Nintendo Wii and -- more importantly -- it's predecessor, the Nintendo Game Cube. Young boys loved the Game Cube: it was small and cute and cheap; it even had a handle so they could pick it up and carry it to play with friends. The problem is that the core group of boys who played the Game Cube would "graduate" to a Sony PS2 or Microsoft XBox. These boys were the first tier of non-customers: current customers who were likely to leave. The second tier of non-customers were girls: they were the same age, had access to the same resources, but just didn't show interest in the Game Cube. Finally, geriatrics in nursing homes were the third tier: they thought a Game Cube was the box containing the checkers board.

Nintendo of course turned those tiers of non-customers entirely on their head. By studying the six-paths and applying what they learned to redefine the market boundaries they built the Wii and the Nintendo DS to appeal to both customers and non-customers alike. Boys love the Wii, but so do girls, young men, mom's, and just about everybody who tries it. Changing the key factors to attract girls to play the DS was especially inexpensive albeit brilliant: they came out with a version in pink. As for the Wii, it was renamed from it's code-name the Nintendo Revolution. Boys loved the name "Revolution" -- my son still does -- but they could live with the Wii. Girls went for the Wii, they had no interest in their brothers revolution.

One company that has a massive swarm of first tier non-customers is Microsoft. Vista is a disaster. One commentator, writing about the merits of Vista, described a key benefit as the inclusion of Snipping Tool, an application that takes screen-shots. That is, the strongest proponents of a multi-billion dollar project that took years to complete, greatly increased the hardware requirements needed to run, and cost almost double its predecessor were reduced to citing the inclusion of a trivial piece of freeware.

People are getting ready to flee Vista. I personally have a Vista "Ultimate" computer, a Macintosh, and I just ordered an Ubuntu (Linux) machine from Dell. Long term, putting up with the sluggish speed and instability of Windows just doesn't make sense, especially given that I'm sure Microsoft will soon enough want even more than the $400 I already paid for this awful operating system. In the case of Vista, it's not that the advantages outweigh the disadvantages: there are no advantages I can think of except that I need to use this computer to test software because Windows is what most of my clients use. If my clients change, so will I. I'll probably change anyway, and keep a Windows computer only for testing.

I'm a vocal and classic first-tier non-customer for Windows. Microsoft has literally millions more like me. I'm not being alarmist or anti-Microsoft: Gartner calls the current state of Windows "untenable" and has announced that Windows is "collapsing." Microsoft engaged in classic technical innovation: innovation for the sake of innovation, when releasing this awful beast. Now they're driving away their customers in droves.

Blue Ocean Strategy: Adding Value to Value Innovation

Blue Ocean Strategy is comprised of two primary pieces. I've focused the last few posts on the managerial components, because most people don't pay attention to those. But this is a blog for product and business developers, and most are focused on the concept of value innovation.

To reiterate, value innovation involves finding the key factors of an offering then eliminating and reducing factors that consumers can live without. Some of the cost savings used to eliminate and reduce are used to raise and create key factors that make an offer truly compelling and unleash a business that makes competitors irrelevant. Think the Nintendo Wii, Google's search engine, the Toyota Scion, and the entire open-source movement.

I've found the biggest challenge to the implementation of Blue Ocean Strategy is the accurate identification of the key factors and then having the guts to eliminate and reduce those key factors. If you do not eliminate and reduce substantive key factors, you are not practicing Blue Ocean Strategy. The whole point is to be able to create a Wii then sell it profitably for $250 at retail, while your red ocean competitors make machines that people want less and that sell for considerably more while taking a large loss.

I've seen too many value curves where people simply identify a plethora of key factors and raise them. This is a predicable recipe for what is, at best, a mediocre offering and at worst a disaster. The focus groups and internal marketers will probably be happy: "hooray -- this 'new' thing is like the old one's but there's more of it." But the market will, at best, shrug. Think Microsoft Vista, Yahoo search, or Dell's relentless pursuit to gut their respective companies. [In all fairness, I just purchased a pre-configured Ubuntu laptop from Dell. The fact the sell such a thing suggests they're once again trying, but it took me an hour to complete my purchase once I made my buying decision, thanks to an ineffective, frustrating, and ultimately useless phone-tour of India].

Ensure the "value" in value innovation: use the Four Actions Framework to eliminate and reduce key factors that consumers don't care about. Is Blu-Ray movie playing cool? You betcha. Do the movies look great? Sure they do. The physics and high-definition graphics are slick: they're so real an early PS3 critic said the absence of real-life made basketball players look like zombies. Still -- even with, or maybe despite all the neat gadgetry -- my kid still doesn't seem to have much interest in a PS3 or XBox360, despite that he loved his PS2. His attention is entirely on the Wii.

Blue Ocean Strategy & Open Source Technology

My latest project is Blue Ocean Strategy Createware, the only authorized practitioner's tool for Blue Ocean Strategy. Createware is an ongoing project that probably deserves an entire series of posts, though I'll start with one insight I had from a module we're just finishing.

First, some background. Createware is web-based software built entirely, by design, on open-source technology. That doesn't mean that we didn't use any proprietary software while building it but, rather, that none of those proprietary standards sneaked into the final product. For example, the team uses a collection of Windows and Macintosh workstations, and our servers run the standard open-source LAMP (Linux, Apache, MySQL, & PHP) stack. The interactive chart making modules are programmed in Flash, an open standard, though we used Adobe's proprietary tools for our design and compile cycles.

An insight I had is that open source may be the single best example of a Blue Ocean movement I can think of. Everything about the open-source movement seems to leap straight from the theory. For example, the core of the open-source movement is Value Innovation. Disparate groups of developers listened to customers and non-customers, fielded a list of key elements, then used the Four Actions Framework to decide what needs to be Eliminated, Reduced, Raised, & Created.

Besides applying the Four Actions Framework the open-source movement also embraces Fair Process and Tipping Point Leadership. There are gatekeepers that decide whose code goes in and whose gets left out: this is actually a well-defined structure. These gatekeepers make informed decisions and almost always let people know how they came to their decisions, and the decisions are usually relatively final. Similarly, decision makers exercise Tipping Point Leadership; a small and fluid group of extremely influential people lead by ability rather than fiat. There are no spoiled heirs here. Even the most influential leaders -- GNU founder Richard Stallman and Linux creator Linus Torvalds -- have found themselves uncomfortably marginalized within their own movements at times.

The mechanism that drives the Value Innovation process within the open-source movement isn't entirely clear, but it definitely exists. Let's take the flagship Linux Operating System as an example. For purposes of illustration, I'm focused on the OS in general, rather than any specific implementation. The development of Linux Eliminated monolithic control over the code-base, Reduced branding and marketing, Raised product quality and reliability, and Created a peer-review system.

These sound easy but at the time they represented a wildly different way to think. The Free Software Foundation (FSF)/Gnu's Not Unix (GNU) project brought us 90% of the way there, but by leaving in place the monolithic control the GNU group understandably, albeit irrationally, spooked corporate chieftains. Torvald's Linux removed this control; the downside is there are dozens of flavors of Linux but the upside is that a number of these flavors are supported by the software giants and -- with that support -- moved from being a marginal experiment to becoming the preeminent operating system of corporate data centers.

Just because the open-source model has been successful doesn't mean there are those that don't try to usurp it to some extent. One of the features of Createware is "Save to Power Point" but, remember, there are no Windows Servers involved. How do we do that? Using a relatively new technology called Office Open XML (OOXML) that allows people to write Office document without Office. What's the downside? OOXML is insanely complicated to work with compared to OpenDocument, a competing format widely endorsed but so far incompatible with native support for the widely deployed MS Office. Why would Microsoft allow us to do that? Cynics say they made the format so complicated that programmers decide it's not worth fiddling with and just use Windows and Office. I'm not ready to take either side, except to say that OOXML did seem unnecessarily cumbersome and the documentation was overwhelming, but -- to be fair to Microsoft -- there is a lot of genuine complexity involved in the underlying engineering issues.

Is OOXML an attempt to rein-in the Blue Ocean open standards before they trample Microsoft's red document preparation software and reduce it's utility to a commodity: a tool to bloody up the blue ocean of open source? That's a religious debate I'm not going to wade into, other than to say that it's nice to be able to save to PowerPoint natively. Why do I need to save to Power Point, as opposed to a different document format? Because that's what my customers demand. Why do they demand that? That's the eventual Achilles heel of open-source and probably a question best answered by a strategic consultant rather than an enthusiastic product developer.