Call me Ishmael - Beware trying to bloody a Blue Ocean

"...to the last I grapple with thee; from hell's heart I stab at thee; for hate's sake I spit my last breath at thee."
- Captain Ahab, Moby Dick. Herman Melville, 1851.

Using the Blue Ocean metaphor it's impossible to not imagine a certain chief executive of a business in Redmond in the role of Captain Ahab, chasing down legendary Moby Dick in a dangerous effort to bloody the blue ocean. Ahab says he's given up the hunt, but everybody knows Ahab can't quit as long as Moby is alive.

Skipper Steve, his ship unable to navigate the stormy waters of the web, wants nothing more than to harpoon one of the whales that caused this mess; that battered both him personally and the vessel that served him well all these years. As long as Moby's cousins Google and Yahoo! -- the latter admittedly one lame beast after a harpoon took out half its brain -- swim the wild blue ocean our modern Ahab will be called to hunt them.

With more money than most countries Ahab is certain to eventually harpoon our modern-day Moby, but at what cost to himself, his ship, and his crew only history will tell. In any event, I'm symbolically composing this post on my Dell Ubuntu machine. It's not a dual-boot. The only thing worse than having a competitor build a blue-ocean in your sector is polluting your formerly Blue Ocean to the point that its new red hue is unmistakable.

"Give not thyself up, then, to fire, lest it invert thee, deaden thee; as for the time it did me. There is a wisdom that is woe; but there is a woe that is madness." - Moby Dick.

Blue Ocean Strategy: Microsoft & Yahoo -- Build a better search

Writing again about MS and Yahoo. Yahoo came in with essentially flat earnings. Depending upon how one parses the numbers Google's profitability grew 30-40 percent during the same quarter. Google is clearly a Blue Ocean Strategy company (click here for a BOS analysis of Google: "Bloogle: Making Portals Irrelevant"). Based on earnings MS CEO Steve Ballmer says he's ready to walk away from the deal. He's probably just bluffing but walking away would be the best move.

It isn't that MS doesn't need the reach of a world-class search engine: it's just that Yahoo doesn't fit that model. There are some great Yahoo properties -- Flickr, Groups, Messenger -- but the centerpiece of Yahoo is search and Yahoo's search stinks. The problem with Yahoo search is that it's adulterated. Yahoo liberally co-mingles paid search results with organic results: doing so violates the integrity and credibility of the results. Many consumers outright understand this; others just sense that something is "wrong" or "weird" with the results (I've heard both words used).

Yahoo searchers feel like they've walked onto a used-car lot: they put their guard up and many don't return. Yahoo used to have a strategic advantage by human-indexed search results but that fell apart when they switched to paid inclusion; pay Yahoo a few hundred dollars and you'll become relevant, even if you're a third-rate hack in your field.

For those not in the know paid inclusion is like paying for a job interview: the job you stand to receive is junk. Similarly, Yahoo's search results are worthless. Since virtually everybody knows this at some level only the most clueless are left searching on Yahoo, which dilutes the value of the search results to advertisers. These diluted results -- stemming from a lack of credibility -- push Yahoo to do more to monetize results, which typically means more dumb tricks like co-mingled results, which even further dilutes credibility. The resulting death spiral they're in is well documented and will be studied in business and journalism text books for many years.

Microsoft: if you want to build a better search then build a better search. Look at the tiers of non-customers and apply each through the six path framework to find the key factors of a great search engine. Google's clobbered you and Yahoo but you two set them up perfectly: you, Microsoft, focused too much on technology innovation and Yahoo self-destructed. The only way to fight a BOS offering is with another BOS offering. Google redefined the rules once; you can and should do the same back to them.

Without going into a full-scale analysis I'd think the key factors of a Google beating search engine would include Price, Ease of use, Scope of items returned (not just websites), Credibility of results, Comprehensiveness, Relevance of search results, Honesty and integrity of search provider, Objective and subjective descriptions of results, and Reward to business owners for playing fairly. There's probably a few more, and some of these probably need refinement. But buried in there, I'll bet, is the recipe for a genuine Google killer. It won't be cheap to build, but it'll cost a lot less than buying Yahoo and trying to reform its culture, brand, and technology.

Yahoo & Tipping Point Leadership

No matter what one's thoughts on the mideast former Israeli diplomat Abba Eban once famously said "Arabs never miss an opportunity to miss an opportunity." I won't get into whether I agree or disagree, except to say that his insight can be focused on plenty of business organizations. One of my favorites lately comes from perennial red ocean punching bag Yahoo.

I'm quoting from a news.com article here: Google deal gets 'big eye roll' from Yahoo employees.

One source inside Yahoo said it's not uncommon for executives to hold planning meetings for follow-up planning meetings, Dilbert-style. That bureaucracy could cause more Yahoo talent to leave for opportunities elsewhere.

"There's a lot of pent-up creativity," the source said. "Morale is in the sh**ter."

Yahoo has shown the opposite of leadership: they're mired in the red ocean, flaying around and being eaten alive. Recent releases showed their share of the search market continues to shrivel.

Yahoo destroyed their search engine with pay-to-play, but has some other great products like Flickr, Messenger, Groups, and Answers. They had good market timing. They used to have some really good people. But the documentation is overwhelming that this company is falling apart, in a death spiral of red ocean competition that's steadily increasing in strength and velocity like one the hurricanes that occasionally wash up on the shores of my state.

Yahoo has the raw stuff needed to reform itself into a strong Blue Ocean company, but lacks the willpower needed to complete the task. During the first dot-com bust I saw lots of companies fall apart; many were poorly managed, but others just had lousy timing. Yahoo put in place things like pay-for-play in their search engine that they never quite recovered from, and still haven't removed. While it hurts on an individual basis -- the people personally affected -- Yahoo deserves the fate that awaits.

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.

Nintendo Wii Blue Ocean Strategy -- Strategy Canvas

In April I'll try to show some Strategy Canvases built with the Blue Ocean Strategy (BOS) practitioner's tool I developed, BOS Createware. I'll start with the Nintendo Wii. Nintendo has never released the strategy canvas they used, but the canvas above is a good guess of what it probably looks like.

Let's look at the Key Factors, and examine how Nintendo likely arrived at them:

Eliminated Movie Playing. The PS3 plays Blu-Ray disks. The XBox 360 plays HD-DVD. Both play DVD's. The Wii plays ... nothing. Only games. Nintendo realized that high-resolution movies on a game machine are Technological Innovation: innovation solely for the sake of innovating. High-resolution movie-playing adds cost that doesn't align with the added consumer value.

Reduced Graphics & Physics. The Wii has good-enough graphics: they're fine. Using the six-path category of Strategic Groups shows people trade-up on entertainment to TV and movies or down to board-games. Nintendo obviously realized the cost of trying to invent a widget that traded up to the higher strategic group, movies, didn't outweigh the cost. Physics is similar: balls bounce just fine but if you're looking for real-time rendering of wind rustling through leaves look outside your window: this isn't something important enough to justify the added cost.

Raised Fun. This one almost seems obvious but, in retrospect it's probably the biggest six-path key factor responsible for the Wii's success. Microsoft and Sony concentrated entirely on functional elements: great graphics processors, physics engines, specialized chips, etc... Nintendo used the six-path element of Functional/Emotional to turn that around. Everything about the Wii is Fun: Fun -- an emotion element -- was placed over chips, a functional element. Mii's are fun; the fact the PS3 does a petaflop of calculations is cool, but not especially fun. Besides raising the Fun element Nintendo created the Virtual Console to take advantage of that giant game library they had lying around.

Created the Wiimote: Nintendo's Magic Wand. I've written an entire post just about the Wiimote: here's a link -- http://www.valueinnovation.net/2008/02/create-tech-innovation.html.

Repeating the well-known end-result, the Wii blew out of stock the day it was released and has remained unavailable ever since. PS3's and XBox 360's are stacked up as tall as a person on showroom floors, but you still have to show up at store opening times for the chance of landing a Wii. At last count the Wii was outselling the PS3 4:1 in Japan and is projected to overtake the XBox 360 in total volume of consoles by year-end despite that the 360 had a year head-start. Nintendo didn't compete in the Red Ocean: they created a Blue Ocean that rendered the competition irrelevant.