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Blockchain & Blue Ocean

In a recent post, I discussed scalability issues of the Bitcoin blockchain, largely from a database perspective. By traditional database standards, it’s pretty weak. But that doesn’t necessarily make it terrible. In fact, we can frame how the blockchain is great, and why it’s done so well — even from a database perspective. It’s the Blue Ocean Strategy perspective. The idea is: rather than battle others based on existing criteria in the market, don’t get caught up in the existing critera and instead create new sources of value. Put another way, escape the “bloody red ocean” of sharks competing, and go to a blue ocean of “uncontested market space”.

Here’s an example of Blue Ocean at work. Yellowtail wine (from Cassella Wines) won a profitable niche in the intensely competitive wine market. They did four complementary actions:

  • Eliminate factors that the industry assumes but adds no value to customers: Wine drinkers didn’t really care about aging & tannin.

  • Reduce factors that over-deliver: Casella shipped just one white & one red wine.

  • Raise factors that customers care about way above industry standard: Casella made wine less intimidating to wine n00bs like me via goofy costumes, simple labeling, etc.

  • Add factors (new value) that weren’t previously offered: Casella made wine drinking easy and adventurous.

I think there’s a fifth complementary action, that’s crucial to success:

  • Get different customers: Casella tarketed beer drinkers interested in wine, not traditional wine drinkers.

Other great examples include the Nintendo Wii and Cirque du Soleil. Wii got grandmas playing video games! And Cirque competes against Celine, not against Happy The Cloun.

So what about the blockchain? Let’s explore, on each of the five complementary actions:

  • Eliminate factors and reduce factors: DB throughput, latency, size, bandwidth – gone or nearly gone [link]. Ease of use – nearly gone too.

  • Raise factors and add factors that weren’t previously offered: trusted way beyond any traditional database, via the characteristics of being public, transparent, and owned by no one via decentralization [link].

  • Get different customers: the blockchain’s first “customers” were Bitcoin users, people who wanted to experiment with a new e-currency (Bitcoin 1.0). That customer base is now growing to include the awesome beyond-currency stuff (Bitcoin 2.0 and 3.0 in the words of Melanie Swan). That’s pretty different than the customers of Oracle and Sun!

Cool, huh? To summarize:

The Bitcoin blockchain is Blue Ocean Strategy at work.

Epilogue: I just noticed — while the original Blue Ocean Strategy book came out in 2005, a new version just came out, in Jan 2015.