Red Ocean refers to existing markets where companies compete for known customer segments with established rules. The name derives from the metaphor that the water turns red when many sharks fight over the same prey. In Red Oceans, market boundaries are defined, competitive rules are known, and differentiation possibilities are limited.
The typical dynamic in Red Oceans is a race for market share through better products, lower prices, or stronger marketing. The more providers crowd into a market, the more margins shrink and the harder differentiation becomes. The smartphone market in the Android segment is an example: dozens of manufacturers compete with similar products, margins are thin, and competition runs primarily on price and specifications. In contrast, Apple created a Blue Ocean by establishing different value dimensions through design and ecosystem.
The concept comes from W. Chan Kim and Renee Mauborgne and forms the counterpart to the Blue Ocean. The strategic implication is not that Red Oceans are inherently bad but that one should be aware of the environment in which one operates and whether a breakout into new value dimensions is possible.
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