Blue Ocean Strategy in SaaS: New Pain Points, New Market
In the business world, particularly in the early days, competition has always been at the forefront of the conversation. You start a business and compete with whatever players are operating and dominating in your chosen space.
But in 2005, a book titled “Blue Ocean Strategy, Expanded Edition: How to Create Uncontested Market Space and Make the Competition Irrelevant” was published.
The book was written by professors W. Chan Kim and Rénee Mauborgne. They challenged the very idea of competing with other businesses in a given industry.
Instead of grappling with market rivals, the authors outlined the importance of what they dubbed as the Blue Ocean strategy.
In this blog, we’ll be discussing this approach and how you can use it to cultivate your business and achieve profitable growth.
Let’s begin with the definition of the Blue Ocean strategy.
What is the Blue Ocean Strategy?
Imagine you’re a shark swimming in the ocean. As far as you could see, other sharks are swimming with you and eating the prey you’re supposed to be consuming.
This competition turns the water red, which the authors aptly called the red ocean. Here, sharks are locked in a never-ending contest with each for a slice of the market share.
But imagine if you swam out far enough that you no longer see other sharks. It’s only you, the vast ocean, with plenty of fish all for yourself.
That’s the blue ocean.
In the business world, that’s translated to a company that created a new uncontested market space where competition is irrelevant. It’s irrelevant because the competition is non-existent in the first place.
You’re the only one operating in the space as you’re the only one offering a particular product or service. That’s a massive competitive advantage for any startup that allows it to occupy a market share all by itself.
Blue Ocean Strategy SaaS Example
Salesforce is one of the best examples of the Blue Ocean strategy. In its early days, the company was once called “the ant at the picnic” as it was going up against giants like Siebel or Oracle.
Today, not only did Salesforce become a giant itself, it overtook its competitors that were once dominating its market.
But how did it do it? How did a fledgling company take out multi-billion dollar players that are already entrenched in an existing industry?
Salesforce: Creating Blue Oceans
Before Salesforce’s dominance, the main tool used by companies for customer relationship management was on-premise solutions. These were offered by SAP, Siebel, and Oracle.
But there were several challenges for companies, especially startups, to adopt these solutions. They were simply too expensive.
- The product itself
- The hardware to run the software
- Software support
- Software integration, implementation, and maintenance
- Employee training
Overall, these requirements would typically cost a company around $2 million in its first year alone.
And there are other problems to boot.
Some – if not most – companies buying these products didn’t even use them. At least not to the extent to warrant paying the heavy price tag in the first place.
Recognizing these massive pain points, Salesforce used value innovation, strategic thinking, and emerging technology to create a unique competitive advantage. The company leveraged the rise of the internet and moved the service from on-premise to the cloud.
That means companies, large and small, no longer need to buy the product.
They could simply connect to the solution from any browser. Large numbers of users can access it simultaneously. And it was no longer required to install and maintain expensive on-premise servers.
The payment was subscription-based and had different tiers. This provided small and large businesses to tailor their approach based on their budget limitations.
It transformed Salesforce from “an ant in a picnic” player to an innovative colossus in the global CRM market. To put its dominance in perspective, the company controls 19.8% of its market in the first half of 2020.
SAP, Adobe, Oracle, and Microsoft – the four closest rivals of Salesforce – only has a combined share of 17.8% in the same period.
That’s not all.
Considering the massive disparity between Salesforce and its competition, it’s unlikely they could keep up with its projected growth.
Salesforce’s growth revenue estimate is at $50 billion in fiscal 2026. That means its CAGR (compound annual growth rate) will be at 19% between 2021 to 2026.
As of October this year, Salesforce’s net worth is a whopping $268 billion. That’s an impressive achievement for a company that was once mocked as “the ant at the picnic.”
So can you replicate the success of Salesforce? And if yes, how?
Where to Begin When Creating Blue Ocean Opportunity
Creating what Salesforce did is a tall order, to say the least. But it’s not impossible either.
But where do you even begin? How do you create a new market where there’s virtually no competition?
If you’ve been paying close attention so far, you may have spotted a couple of strategies you could do to create your blue ocean strategy.
One of which is identifying pain points.
Before we expand on this, we will focus our attention on the SaaS industry since this is what this site is all about.
With that said, let’s begin.
Pain Points in the SaaS Industry Today
As mentioned earlier, Salesforce’s success is mainly rooted in addressing the cost and convenience of CRM software. Of course, considering how the SaaS industry has evolved today, those pain points are nearly non-existent.
But similar to the evolution of most industries, other challenges have arisen. In SaaS, one of these challenges is market saturation.
Seeing the blue ocean created by Salesforce, it was inevitable that other companies would want to get a piece of that pie. Today, there are over 15,000 SaaS companies in the US alone. That’s followed by the UK (2,000), Canada (1,000), and Germany (1000).
While these are scattered across different niches, they still turned the ocean red. So red, in fact, that small and large companies are burden by unnecessary SaaS products that mostly goes unused. The red ocean strategy was favored again due to SaaS pollution.
And not only that, with thousands of SaaS products out there, it’s creating tensions between departments.
Interdepartmental Conflict Due to SaaS Pollution
You see, in an attempt to streamline their operation, managers of each department are using several SaaS products. This might be great for that specific department but it’s putting tremendous pressure on the finance teams.
They now have to reconcile invoices from various solutions. What’s more, they’re demanding more control and management from different departments when purchasing SaaS products.
After all, the finance team is handling these payments. And when these payments reach red levels, the brass will start questioning where these costs are coming from.
Sure, the financial department can blame these burgeoning expenses on SaaS usage. But they’ll still need to create and submit these reports themselves.
All of these unnecessary burdens are causing burnout to members of the finance team, which eventually leads to employee churn. And that’s just one of the problems in the company too.
The IT departments are having issues of their own as they need to evaluate whether or not the SaaS products are indeed helpful. They need to test its features and if the software company is compliant with the laws of certain regions.
Here’s a quick scenario.
Let’s say the marketing team is requesting access to a new SaaS solution for an upcoming campaign. They’ll first need to get the green light from the IT and finance team.
A cost and feature evaluation are then conducted, which would take weeks or months. Meanwhile, the marketing people are drumming their fingers as they wait for approval from the IT and finance departments.
Tension begins to rise. What’s more, the flexibility of trying new SaaS products has vanished and replaced by a rigid approval system.
The excitement of trying new solutions to capture more leads has all but evaporated.
And it’s safe to say that the sales department isn’t too thrilled with this new bureaucratic protocol either.
Resentment is high. Flexibility is low. And the once smooth collaboration between departments is slowly crumbling.
Creating Blue Oceans Within Blue Oceans
Given these problems, several SaaS startups have emerged. One of which is a company called Cledara.
In a nutshell, Cledara is a SaaS management platform that evaluates the usefulness of a solution for a particular company.
This evaluation is ranked and rated for its cost, ROI, and impact on employee engagement.
As a result, companies, especially those at the enterprise level, can monitor the various SaaS subscriptions they have.
This allows them to see if the cost of these solutions is worth it or it’s merely an unnecessary expense.
Cledara is a fine example that you don’t need to create uncontested market space when creating blue oceans.
You just need to be perceptive enough to evaluate an industry and provide a valuable service or product to address existing demand.
Will Cledara dominate its space? Who knows?
As we’ve seen, blue oceans tend to become red oceans once enough sharks occupy a market space.
And this is the lesson you’ll need to keep in mind.
Always remain vigilant to the evolution of your industry to identify early pain points and offer innovative solutions.
Solutions that only you can offer.
From there, you’ll need to tweak your business model and adjust according to the needs that will arise.
For SaaS, that means monitoring the evolution of the tech industry and identifying tech advances that will disrupt the global market as a whole.
5G, artificial intelligence, blockchain – these are just some of the examples that easily come to mind.
With these emerging techs applied to the SaaS industry, could you think of ways that would render the competition irrelevant?
Let’s dive deeper and explore market boundaries.
SaaS Lifetime Deals
So far, we’ve outlined one of the core problems of the expanding SaaS industry: tracking subscriptions and ROI.
The solution needs to be innovative enough, simple enough, and useful enough to warrant renewable contracts. If they are, it would mean years of monthly payments that would take a chunk out of your MMR (monthly recurring revenue) and ARR (annual recurring revenue).
But what if you could just pay once and enjoy these SaaS products for life? Is that even possible?
Enter SaaS lifetime deals or LTDs
As the name implies, SaaS lifetime deals allow you to pay for a SaaS product once and you own it forever. Or at least, until the company collapses and support is no longer provided.
Startups offer these deals to early adopters so the word can spread and users can stress-test the system. There are some drawbacks, obviously.
- Has it been developed enough so it’s actually useful?
- Are there features that could increase your productivity and revenue?
- What’s the product’s roadmap?
- Is it going to last long enough so you can get back your initial payment?
- What’s customer support like?
These are just some of the risks involved in LTDs. But there are advantages as well.
A solution that’s just emerging could become the next big thing.
While the chances of this are low, it can still happen. As such, a lot of people are still willing to take the risk.
And considering you could lower these risks with a few steps, the attractiveness of LTDs becomes even more appealing.
Now, we’re seeing another blue ocean being explored by innovators.
You may have already guessed by now what sort of companies are trying to inhabit this new market.
They’re trying to lower the risk involved in LTDs by evaluating the usefulness of these new SaaS products and recommending them to early adopters.
Poke long enough on several social media platforms and you’ll eventually come across communities created by large players obsessed with LTDs. At the moment, there are only a handful of these players out there that have a massive member following. The rest are just decent in size.
But for all their dominance, problems are still arising.
Do you see the pattern here? A blue ocean is emerging once again.
This time, it’s about one of the problems mentioned above. New SaaS products aren’t getting vetted enough by platforms to warrant early adoption.
This leads to LTD buyers purchasing solutions that aren’t as useful. Or the new product they bought is too similar to the ones they’re already using.
So what do they do? They refund their payment. But there are problems regarding reimbursements too.
The result is that legitimate solutions aren’t getting early adopters as these early adopters have been burned before. And they aren’t thrilled to deal with the hassle of the refund process.
Don’t get it twisted, there are still plenty of risk-takers out there. But if the trend continues, it would certainly diminish their numbers.
Here’s another pain point: LTD pricing
One of the fastest ways of getting early adopters is getting a SaaS product sold on platforms where there are a lot of members.
The downside for these startups is that popular SaaS platforms are getting a huge cut whenever a sale has been made on their site.
Now, this takes a significant chunk out of the revenue that the startups could’ve taken home.
To mitigate this, the sellers will increase their asking price to get their desired final price once the platform’s share is factored in.
This usually means early adopters are shouldering these price increase, which could influence their purchasing decision.
The SaaS startups are having trouble getting early adopters to stress-test their product and gain some revenue for feature improvement.
As of writing this article, there’s still hasn’t been a Blue Ocean strategy that has emerged for this problem. Those that are competing with the big players are using a red ocean strategy.
Which basically means strategic pricing is implemented to decrease the cost of SaaS LTDs, among other strategies.
It would be interesting to see if someone could come up with a solution for this pain point. But once somebody does, expect to see the market share getting occupied by a single player. For a while, at least.
In due time, the ocean will turn red again as more players enter the new market. Then a value innovation is created that’ll produce another blue ocean. It’s a never-ending cycle.
Blue Ocean Idea: Focusing on Customer Success
When coming up with a Blue Ocean idea in SaaS, always start with unresolved pain points. This is relatively easy to research nowadays what with social media and popular forums providing online spaces where people discuss these topics.
Explore these areas and write down problems in your niche, then prioritize them based on how much they’re repeatedly discussed.
- Is the existing demand of the community focusing on customer support?
- Is the known market space creating cutthroat competition that’s hindering the progress of the product roadmap?
- Or perhaps there’s a persisting new demand for a feature that’s heavily requested by existing customers?
These are just some of the pain points you’ll come across if you’re trying to come up with a Blue Ocean idea.
Long story short, it’s all about your customer’s success when it comes to SaaS.
When your solution is helping them with their campaigns, there’s no doubt they’ll remain loyal to your tool.
Soon enough, you’ll eventually see your revenue profitable growth climb the graph.
If you’re interested in more SaaS marketing strategies, visit our blog here.