Blue Ocean Strategy

Creations of blue oceans (Creation of

uncontested market space to go beyond
competition where both buyers and company
simultaneously win)
Focus on the big picture, not the numbers
Reach beyond existing demand
Overcome hurdles
Avoid red oceans trap

4 Steps:
1. Buyer utility (Powerful value
proposition; exceptional utility
minus the price you pay)
2. Setting right strategic price
3. Achieving a target cost structure
4. Overcome adoption hurdles

Skype in the Voice-over-IP Industry:

A Commercially Viable Blue Ocean?

663 million registered users (201011)

Verb: to Skype someone
Failed to reach profitability in four
out of five years from 2006 to
2010. 207 billion minutes of voice
and video calls and over 176
million text messages but only

3 Buyer Utility Maps

1. Long-Distance Calling Services
Killer factor was video component (Skype
reported in its 2010 IPO filing that 42% of
Skype-to-skype calls included a video
component)
2. Room-Based Video Conferencing
Skype combined the existing voice- and
video-over IP technology with the peer-topeer network structure to offer video
calling to anyone with a computing device
and internet access.

Why Skype has not been seeing a fast

mass conversion from traditional phone
users to paying Skype customers?
3 possible hurdles in mass adoption:
a) Switching cost- users will need to convert to a
new (SkypeIn) phone number and notify all
contacts
b) Sense of entitlement- users may refuse to pay
for something they receive for free, even
though the free service does not allow for calls
to phone lines
c) Low level of awareness and understanding- the
target mass of phone users may not know the
comparative benefits.

 Why Skype has continued to offer its Skype-to-Skype

video calls for free despite its compelling utility, and
why it has historically priced monthly phone calling
subscriptions so low?

 How much more revenue could Skype bring in if it were to

set a strategic price for its more ubiquitous and visually
enriched combined voice and video offering (that is still
lower cost than traditional phone offering

 Based on your understanding of the blue ocean

strategy sequence, did Skype create a
commercially viable blue ocean? Why or why not?