GMail - Case Study for Blue Ocean Strategy
Submitted June - 2007
Management Development Institute
Red
Oceans & Blue Oceans
The book
Blue Ocean Strategy, written by Kim and Mauborgne, defines the term
Red Oceans to represent all industries in existence today which make
up the market place. The boundaries in the market place are defined
and competitive rules are known – companies try to beat each other
by increasing their market share within the existing demand which
eventually leads to shrinking profits and lower growth for all the
players in the market.
The term
Blue Ocean is defined as an untapped market space, where demand is
created, with the likelihood of a high profit-growth opportunity. The
book provides practical tools to analyze strategies for creating such
blue oceans.
This case
will present a brief overview of some of the concepts and tools from
this book and use Google’s GMail service as an example of Blue
Ocean strategy in the Webmail industry.
Value
Innovation
Value
Innovation is creating value for buyers to open up new market spaces
where there is little or no competition. Emphasis is placed on both -
creating value and innovating, i.e. the utility for the customer is
enhanced without incurring huge costs.
Webmail
Industry Before 2004
The major
players in the webmail industry up to 2004 were Microsoft’s Hotmail
and Yahoo Mail along with some smaller players. The industry offered
its users two basic types of services – a free webmail account and
a paid premium account.
The free
webmail account required users to register and create an account with
the service provider. The average space offered to the users ranged
between 2MB to 5MB. Both the major players also provided separate
chat clients to their registered users. This service included a few
additional features like Spam protection and blocking addresses. The
interface to the webmail applications were simple - sequentially
ordered mails, folders to organize mails, ability to attach files
with mails, support for composing mails in both Html and text,
customizing the colors used in the interface, with advertisements
placed on different locations of the screen, etc.
The
premium webmail accounts offered by these major players provided
additional services for monthly or annual subscription fees. Some of
the premium services included larger mailbox size, ability to send
larger attachments, few or no advertisements and POP3 access to
download the mails.
The major
players set the standards for mailbox size, maximum size of
attachment and other features for both free and premium accounts.
They competed on cost for premium accounts and on usability for both
premium and free accounts.
Webmail
Industry Post 2004
In 2004,
Google launched a beta version of its webmail service called GMail.
The service offered users all the features of the traditional premium
accounts and many more, and that too all free. Initially gmail
offered users 1GB of disk space, mail attachment size up to 10MB,
free POP3 access, threaded view of mail conversations, keyboard
shortcuts, enhanced Spam protection and advertisements which are
related to keywords found in the mail, efficient code to navigate in
and out of messages faster and a search mechanism to search mails as
fast as the google search engine which eliminated the need for
organizing mails in different folders. However the users could sign
up for the service only if they were invited through existing users.
Today this
service is open to everyone to sign up for an account and the feature
list includes a disk space of around 2.8GB enabling users to use
their gmail accounts as web-based disk space, the maximum mail
attachment size has increased to 20MB, gmail users can access their
chat clients without having to launch a separate application. The
keyword based targeted advertisements act as the revenue generators
for Google which is a completely different model from that of
traditional webmail service providers.
In early
2004 when an invite was required to sign up for this service they
were being auctioned on EBay for as high as $100! There was a lot of
excitement when this service was first announced. As expected this
caused the existing webmail providers to upgrade their offerings to
match those offered by Google. The changes that took place in the
industry are discussed later in the case.
GMail
Strategy Canvas
The
strategy canvas tool helps in analyzing the players in the market
currently, what factors the industry is competing on and what the
customer receives. The horizontal axis lists the factors and vertical
axis captures the offering level that buyers receive from each of
these factors. The strategy canvas (figure 1) on the next page shows
the webmail market before 2004.
Comparing
the strategy canvas of gmail (figure 2) to that of existing service
providers we can see that Google has created a blue ocean by
providing high offerings on existing features and adding a whole set
of new features which the industry had ignored till now.
Comparing
the value curves of gmail with other webmail providers shows that
Google added new features and raised the offering level for all the
existing features including Advertisements, which would generate the
revenue required to be able to sustain the high costs incurred in
providing the other features for free.
Four
Actions Framework
When value
innovation requires that we increase the utility provided to the
customers as well as reduce the cost involved in making such an
offering - then a need arises to break the trade-off between
differentiation and low cost and to be able to create a new value
curve. This can be done using the Four Actions Framework provided by
the Blue Ocean Strategy -
Which
factors the industry takes for granted and should be eliminated?
GMail
eliminated premium accounts, while the industry so far had argued
that a bare minimum set of features could be provided to the users
free of cost and another set of features would be provided to users
for which they would need to take a subscription. GMail introduced
the concept of displaying advertisements based on the context of the
emails which the user receives, which would lead to users actually
responding to these advertisements. The revenue model has been
changed by Google.
Another
feature - folders - was being offered to users to organize their
mails. The gmail team observed that over a period users tended to
create numerous folders which would again become unmanageable. The
mailbox space offered by gmail is around 2.8GB and growing, if a user
were to actually have mails that would take up this large space then
organizing them in folders would be a mammoth task. To solve this
problem gmail offers an extremely fast search mechanism which
searches all the fields of an email to retrieve the particular set of
emails that the user intends to search for. Thus users can remain
naturally unorganized when using gmail but be able to retrieve any
email whenever it required. This feature seems to have been borrowed
from the folder structure used by most operating systems and is being
force upon users to organize their conversations in a similar manner.
With the
number of users of webmail services increasing every year the
problems of viruses spreading through emails had become common. These
viruses commonly get transferred as executable files. Existing
webmail service providers had built up excellent virus scanning
systems to filter such attachments from the users inbox. However
gmail decided to follow a different approach, instead of building and
competing with these virus scanners it simply disallows sending
executable file formats as attachments. Users are not directly
affected by such a move since netiquettes requires them to compress
or 'zip' such files before sending them. With this strategy a
bottleneck which Google has successfully broken is the time consuming
activity of scanning attachments as well as tracking and updating the
virus scanner regularly since new viruses keep getting introduced.
Which
factors should be reduced well below the industry's standard?
Although
gmail has removed the folders feature, it does offer this feature in
a different but subtle way. The 'label' and 'star' feature in gmail
allow users to categorize their emails. Users can either mark
particular set of emails as 'star' or by a specific 'label' and then
view only those emails which are 'starred' or belong to a 'label'.
There is widespread belief that a majority of users don't use these
features and are becoming more comfortable with the searching mails.
Which
factors should be raised well above the industry's standard?
GMail has
raised the level of offering for most of the features. The capacity
of each users mailbox was initially 1GB and has now touched 2.8GB.
The mailbox size offered by the major competitors like Yahoo is 4MB
and 2MB for Hotmail. Google has been displaying the size of the
mailbox it offers as a sort of counter that keeps on increasing.
The user
interface provided by gmail is simple similar to google's search
engine page. There are hardly any html buttons on the webmail client,
they have been converted into simple html text links making the
interface appear less cluttered. The features less widely used by
most of the users have been moved into a drop down menu – More
Options and there are no advertisements displayed when viewing the
mailbox - all of which provides a lot of screen real-estate available
for the user. The mail conversations are automatically linked to each
other which saves time when trying to figure out 'who replied to
what' when there are a large number of people in the mailing list.
The interface also includes a spell checker when composing mails. The
other industry players had for long ignored this feature of
displaying mails as part of a conversation and they also display
large number of advertisements eating up a sizable portion of the
screen.
For people
who need to refer to their emails offline there is the free POP3, and
there is a support to forward all incoming mails to another account
if required. Such services are also offered by other webmail
providers but it is a part of their premium accounts only. Although
this particular feature would go against their model of generating
revenue through advertisements, it serves as a great way to pull in
users from other webmail service providers.
Initially
the attachment size was l0MB and it has now been increased to 20MB
allowing users to exchange larger files as compared to average 3-4MB
size limitation of other webmail providers. This feature is in sync
with users who are using gmail as a web-based disk space. However
this feature is limited by the fact that most of the webmail service
providers don't allow sending or receiving mail attachments with such
large sizes.
The gmail
Spam protection feature is much more efficient, it is able to detect
and block such mails much accurately, while other service providers
faced problems with their spam features not being as good. GMail has
an advanced feature that scans all incoming emails of a user for
certain keywords and displays advertisements based on these keywords.
Thus the relevance of an advertisement for a particular user
increases which in turn leads to higher chances of the user actually
clicking on it and generating revenue for Google.
Which
factors should be created that the industry has never offered?
With keyboard shortcuts gmail intends to reduce the amount of effort
required by users to accomplish a task, thus increasing its
acceptability amongst users of other webmail service providers. As
more and more users start interacting through the net, the amount of
information that is exchanged amongst them increases, and also the
need to be able to store and retrieve this information
anywhere-anytime. Users had to download the data from their mailboxes
and store it on their local hard disks so that they do not run out of
space, however gmail intends to relieve them of this task by becoming
their online disk space.
The search utility of gmail is as fast and accurate and it also
allows to search the internet from within the mailbox. Whereas other
service providers had primitive search interfaces which would require
users to provide keywords for a particular field, gmail searches all
the fields for a keyword.
Using AJAX (Asynchronous JavaScript and XML) development approach the
responsiveness of the entire application appears to be as good as a
desktop application allowing users to easily dive-in and out of
mails, compared to the slow Http responses which were served by other
webmail service providers.
GMail allows users to create aliases of their email addresses in a
very innovative manner. For example the following two user id's are
aliases of each other – riteshkapoor@gmail.com and
ritesh.kapoor@gmail.com – note the presence of dot character which
acts as a separator between the first name and the last name. This
kind of an alias helps me in communicating my mail id to someone over
the phone as “just put a dot between my first name and last name
and add @gmail.com”. Another alias technique that gmail allows is
the use of '+' character. I can subscribe to the SQLite mailing list
with the following mail id - riteshkapoor+sqlite@gmail.com, and then
create a filter in my account to filter all mails sent to this id.
This saves users from spending time thinking up of difficult
expressions to filter out subscription based mails.
Market Analysis & Competitors Reaction
Google's competitors have raised their level of offerings since 2004
to either match or exceed that of gmail. For example both Yahoo and
Hotmail have upgraded their inbox searches and now allow their users
to search the web through their mail client. Yahoo went to the extent
of purchasing a company called Stata Labs which was working on better
mail search tools.
Yahoo has also increased the space provided to its user to 1 GB and
Hotmail increased this to 250MB. Recently Yahoo has started rolling
out its unlimited storage space – free of cost to all its users.
Yahoo mail interface has changed drastically after it purchased a
second company called Oddpost, its interface is now similar to the
desktop application Outlook although it still lacks speed. Users can
now access Yahoo Messenger through this new interface.
Further most of the webmail providers have integrated their mail
applications with the rest of the services or applications that they
provide. For example Yahoo mail users can now access their calendar,
RSS feeds and view weather information of their city from within
their inbox.
Eventually the strategic curves of the competitors will expand and
converge with that of gmail. As competitors match the feature list of
gmail and start paying more attention to the needs of the users,
Google will find it increasingly difficult to increase its market
share.
Currently Google leads in search engine business with a 47.4% market
share (as of May, 2006), Yahoo search at 28% and MSN with a 12.9%
share. However in the webmail industry Google ranks at the bottom
with a mere 2.54% market share. Although some analysts may consider
this number to be good enough for a service that was started just
three years back, in Web terminology three years is equivalent to an
era!
(figure 3)
(figure 4)
An established players in the market like Hotmail has around 170
million accounts and an average user views 100 pages on hotmail each
month, providing it with a huge untapped market of paid search –
which is the only source of revenue in the GMail business model.
The Future
Google is known to make surprise announcements and has so far not
revealed what are its plans for the future. How does it plan to
increase its market share? What are the new features it plans to add
to GMail? When will it roll out its premium GMail service?
A survey was conducted as part of this case study to capture inputs
from users and non-users of gmail. The respondents were in the 24 to
35 age group, had regular access to internet at their work places and
they all had technical education after high school.
93% of the people surveyed were existing users of gmail and the other
7% had viewed or had some knowledge on gmail but were not registered
on it. Almost half of the registered users found the keyboard
shortcuts of gmail useful, implying that Google has not done a good
job on advertising this feature. However 87% of gmail users found the
search option of gmail to be efficient. The large amount of space
provided by the webmail providers has led to 50% of the people
storing their personal and official files in their inbox so that they
could access them when traveling.
An area of concern for Google is that 87% of their registered users
still have an alternate account (apart from their work email) which
they user regularly. This signifies that people are still not ready
to make a complete shift to gmail.
86% of the people surveyed found gmail to be more convenient as
compared to other webmail services. There is a good chance that these
are the same people who refused to move to gmail completely, maybe
Google should explore this area to find out why people refuse to
shift to gmail completely and continue to use less convenient mail
id's. What are some of the features which they can provide to make
people go for this transition?
Further 72% of the people registered because a lot of their friends
or colleagues were using gmail, which shows that Google is getting
most of its users through referrals. To keep their referral number
high Google has integrated access to all of its services through the
gmail user id. This is a tricky game since Google might end up with
users who are registered only to access one of the services provided
by them and these users may not be using the webmail utility at all.
It seems that Google is trying to ensure that they have a two-way
flow between their different services, for example a users Google
Talk status is displayed in his Orkut profile, users can open
attached documents they receive with Google Spreadsheets and Google
Document and users can communicate with Google Groups through gmail.
Making GMail a central node to access all the other services is the
strategy.
Half of the respondents replied in affirmative when asked whether
they send or receive large email attachments and if they intend to
use the POP3 access of gmail. In offline discussions with some of
these respondents I felt that they generally use gmail as an online
storage area, whereas when it comes to exchanging mails they switch
to other webmail providers – probably because they had these email
accounts much before gmail. This suspicion was strengthened by some
of the other numbers which this survey brings out – 39% of the
people registered with gmail because they were able to get the mail
id they wanted, 62% of the people felt that Google is perceived to be
a 'cool' company and which is why most people go for a gmail account
and 27% of the people registered so that they could use the social
networking site Orkut.
Definitely Google needs to work harder to create an impression that
their gmail service is far ahead of the competitors.
