The Red Ocean of Social Games

[Editor’s note: How can social game developers create unique new products? In the first of a two part series below, guest author Tadhg Kelly discusses how the social gaming industry fits into the “red ocean/blue ocean” business framework — basically, why social games are so often copies of each other and what developers can do differently in order to succeed. He covers the red ocean aspects below, and will get into the blue ocean part in a follow-up post.]

I was inspired to write this article by Blue Ocean Strategy. In the book, authors W. Chan Kim and Renee Mauborgne explore methods that companies can use to understand how everything that their competition is doing falls into well-defined types, and then create completely new ways to overcome them and consequently new markets.

Most companies, they contend, are locked into competition with each other in the red ocean (i.e. bloody) side of the economy. This means that most of the time they are trying to compete along well-understood existing lines, and that the results of this kind of competition are angry and merciless. In studying red ocean companies, they observe how they all tend to study competitors’ tactics and then emulate or attempt to differentiate themselves. Such tactics seem to be the main way that red ocean companies think and act, as though they are at war, and this leads to a lot of very similar products created, marketed and sold in much the same way.

One particularly effective example that the book cites is the US wine industry: Wine is sold along two lines, premium and budget, and all of the participants in the market tend to compete using the same factors. Premium wine makers talk about heritage, complexity of taste and image. Budget wines also use image, but they talk less about complexity of taste and more about price. While each wine works hard to differentiate itself, Blue Ocean Strategy argues that most of it tries to differentiate itself in the same way. Wine X has 12% more medals than Wine Y, while Wine A has 50 years more heritage than Wine B.

The authors produce a diagram to illustrate the strategic profile of the wine industry, called a Strategy Canvas. The horizontal axis shows the various factors, whereas the vertical reflects the offering level for buyers (meaning the amount invested by the winemakers in the factor, or the price to the buyer).

Their wine canvas looks something like this:

The book’s conclusion about red ocean markets is that they are a result of focusing on competition for existing customers, or existing types of customer. Red ocean companies offer better solutions for existing problems rather than alternatives solutions for new problems, so wine makers try to win medals and plaudits for the complexity of their product in order to win existing customers away from their competitors. Their customers, consequently, are educated enough in wine to look for more and better of those traits, and wine makers by and large ignore non customers entirely.

Facebook Games

I think that Facebook game developers find themselves in a newly red ocean. While it was blue in all directions a few years ago, increasingly it has become dominated by key factors and competition that are analogous to the wine industry. It may not be blood red yet, but it is certainly a reddish purple.

There are a lot of games from a lot of developers, some heavy hitters, one huge hitter in particular (Zynga). While many of the smaller developers (championed by Inside Social Games and others) certainly have grown to interesting audience sizes, the top of the end of the market outside Zynga has actually been declining for a while, with no obvious new competitor to shake things up. The Facebook market seems to reward financial muscle more than anything else in terms of raw marketing and distribution power.