Soon, Cirque was bringing in revenues that incumbents like

Ringling Brothers had taken more than a century to attain --

even though the circus business was in long-term decline.

How did Cirque thrive in such a dismal environment?

The answer can be found in the theory

that the business universe consists

of two kinds of markets: red oceans and blue oceans,

a concept pioneered by INSEAD professors W. Chan Kim

and Renee Mauborgne.

Red oceans represent existing industries and markets,

where industry boundaries and the rules of competition

are well-defined.

Companies strive to outperform rivals and grab a bigger

share of existing demand.

As the space gets crowded, fierce competition

turns the water bloody.

Competitive or market-competing strategy

is about how to occupy red oceans.

By contrast, blue ocean or market-creating strategy,

is about how to create and capture unknown markets where

demand is created rather than fought over.

In some cases, this spawns entirely new industries.

But most blue oceans emerge when a company alters the boundaries

of an existing industry, as when Cirque du Soleil blurred

the line between circus and theatre.

Cirque made the acts more artistic and sophisticated,

attracting a whole new group of customers --

adults who were prepared to pay premium ticket prices as they

would for theater or the opera.

Cirque also eliminated several elements

of the traditional circus like costly animal acts and star

performers.

Cirque invented a new and profitable market space

without making the typical tradeoff

between value and cost.

Cirque pursued both differentiation and low cost,

in what Kim and Mauborgne call "value innovation."

The simultaneous pursuit of value and cost

is the logic of blue ocean strategy.

Based on their study of more than thirty industries,

companies that can create blue oceans

usually reap the benefits for 10 to 15 years

because they are hard for rivals to copy.

To realize blue ocean potential, like Cirque did,

companies should chart a strategic course

past traditional industry boundaries

to create new market space.