How Red Created a Blue Ocean

In 2005, Jim Jannard (founder of Oakley) set up a company called RED Digital Cinema, with the specific aim of creating a ultra-high definition digital camera which would be as good as the 35 mm film cameras. This very successful strategic move that changed the 100 year-old cinematographic cameras industry is analyzed here through the logic of Blue Ocean Strategy – a theory grounded in the concept of value innovation.

The traditional cinematographic camera industry

The cinematographic camera industry emerged in fact more than 100 years ago, but until recently no significant changes took place, apart from marginal technological improvements. The main medium for shooting a movie has been the celluloid film and the quality of the image (the resolution) was very high from the beginning. However, these cameras had some inconveniences: they were not very easy to use, the cinematographer (the user) could not see immediately if the scene was shot as desired (no predictability) and the workflow was very complex and time consuming (developing, processing, transferring, editing and conforming the film).

The cinematographic camera industry emerged in fact more than 100 years ago, but until recently no significant changes took place

On top of that, the price for these cameras was very high: only the big studios could afford to buy them and the related equipment, so the end users (film producers/directors) only rented them at around $25,000 per month. The costs incurred by the users with processing and editing the film shot up somewhere between $500,000 and $1,000,000 per project.

The HD digital cameras

The cinematographic camera industry changed with the introduction of HD (high-definition) digital cinematographic cameras in 1999. The obvious advantages for users were: less hassle in processing (no celluloid film), built-in image processing, faster and simpler workflow (thus more convenient for users). On top of that the HD cameras created predictability (the user could see immediately what was shot) and improved ease of use.

Companies producing these cameras were releasing each year new improved models (planned obsolescence), which was very frustrating for owners

However, the quality of the image (resolution) was still far below the film camera, as well as the artistic tools and the sturdiness (Sturdiness means no “noise”, i.e. no image quality issues caused by vibrations that tend to appear during explosions, car crashes etc.). The price was much lower (between $150,000 and $200,000), but not enough to capture a significant mass of buyers. Another annoying fact was that companies producing these cameras were releasing each year new improved models (“planned obsolescence”), which was very frustrating for owners, whose camera became outdated very quickly.

That concludes that this strategic move was merely technological innovation and not breakthrough innovation translated into a great commercial success and into capturing a mass of buyers.

This is therefore the picture of the cinematographic camera industry at the beginning of 2000s: there were two distinct strategic groups, yet the users had to make trade-offs, as neither group could address all their needs.

The strategic move of its first product, Red One, matches the logic of Blue Ocean Strategy

In 2005, Jim Jannard, a very creative and successful entrepreneur (Jim founded Oakley in 1975 with $300 and sold it in 2007 for $2.1b), set up a company called RED Digital Cinema, with the specific aim of creating a ultra-high definition digital camera which would be as good as 35 mm film cameras. The strategic move of its first product, Red One, matches the logic of Blue Ocean Strategy.

Blue Ocean Strategy

Blue Ocean Strategy is a theory created by INSEAD professors W. Chan Kim and Renée Mauborgne which advocates the creation of a new market space (a blue ocean) as a mean for achieving profitable growth.

The foundation of the theory is value innovation – the simultaneous pursuit of differentiation (increasing value for buyers) and low-cost (reducing the cost for the company), creating a new strategic offering that aims to appeal to a mass of buyers, both traditional customers and non-customers. The increase in value is achieved through raising the value of factors truly important for the buyer and through creating new ones, never offered by the industry. The reduce in cost is achieved through reducing the investments in factors less important for the buyers and even through eliminating other non-important factors.

The great value of Blue Ocean Strategy lies in its powerful innovation process and tools, so it is more about the how than the what

While the theory was built on analyzing existing strategic moves (the descriptive method) to find a pattern for success, the great value of Blue Ocean Strategy lies in its powerful innovation process and tools, so it is more about the how than the what.

The Blue Ocean strategic move of Red One

RED completely reconstructed the market offering by looking across the two existing strategic groups and taking the best out of each. In a bold move, by introducing sensors four times the resolution of HD cameras, RED practically eliminated celluloid film and processing and the built-in image processors and reduced the workflow required for the users, therefore lowering the cost structure of producing the camera. In the meantime it addressed some major blocks to utility and shortcomings (pain points) for users during their experience cycle.

On the other hand, RED raised the value of other factors (relative to the digital cameras) that were highly appreciated by users, but the industry could not satisfy before: predictability, ease of use, sturdiness, artistic tools and resolution. The company also created elements that the industry never offered before, such as an on-line community for users (for exchanging information, body parts etc.) and modularity and upgradability.

Looking across alternative industries

Blue Ocean Strategy encourages companies to look across typical boundaries to create new value factors for buyers, providing a creativity tool for this: the Six Paths Framework. Following a similar thinking to the first path (Looking across alternative industries), RED looked across to the digital photo cameras industry and incorporated the technology used for those types of cameras. The result was an astonishing image quality, as seen in some of the movies filmed at that time with Red One: District 9, Gamer, Jumper or Che, involving big director names.

RED looked across to the digital photo cameras industry and incorporated the technology used for those types of cameras

As mentioned before, RED wanted to address the short comings of the HD digital cameras, and one of these annoyances for users was the continuous release of new improved camera models (the “planned obsolescence”). By looking across industries, RED borrowed the concept of modularity and upgradeability from the personal computer industry: Red One is completely modular and each body part can be upgraded or replaced easily, making it much more convenient for users.

In a nutshell, RED’s strategic move focused on differentiation and low cost at the same time. The result of their value innovation was a strategic offering which was divergent, focused, having a compelling tagline: “RED renders obsolescence obsolete”. The strategic price of only $17,500 managed to capture a huge mass of buyers, by tapping into previously unexplored non-customers (3rd tier): the independent film producers.

The results speak for themselves

RED strategic move resulted in the creation of a blue ocean. In the first year of delivering RED One, the company sold over 4,000 cameras. By comparison, film and HD camera companies would usually sell only a few tens of units in the same time frame.

In the first year of delivering RED One, the company sold over 4,000 cameras. By comparison, film and HD camera companies would usually sell only a few tens of units in the same time frame.

RED aligned perfectly value proposition (creating a leap in value for the user), profit proposition (significant reducing the cost through cutting unnecessary features and introducing the online delivery) and people proposition (executing the strategy in a way that resulted in employees becoming very proud and attached to the company), creating a blue ocean strategy.

RED One’s successor, RED Epic, was used for shooting a huge number of Hollywood blockbusters (The Book of Eli, District 9, The Girl with the Dragon Tattoo, The Great Gatsby, Magic Mike, Pirates of the Caribbean, Prometheus, The Social Network, to name just a few. Like RED One, Epic sold in the thousands, demonstrating that these successful strategic moves did not occur by accident, instead they were the result of RED’s great strategy.