Groupon’s IPO is drawing lots of attention these days and could be much bigger than LinkedIn.  Damien Hoffman puts it in perspective over at wallstcheatsheet.com where he opines:

Groupon is hot. Hotter than LinkedIn.  It’s also a brilliant example of a smart team of people pursuing a Blue Ocean Strategy.

Unfortunately, the once blue ocean has quickly filled with red as countless competitors enter the space on a daily basis. A savvy investor asks, “What’s the barrier to entry?” NONE. The only competitive advantage large daily deal sites have is the size of the email lists they promote to businesses. However, in the case of local proprietors such as restaurants and spas, local newspapers and other businesses will likely have a MUCH LARGER email list of prospective local customers.

These are two primary reasons Groupon’s “high margin” business is actually losing a boatload of money:

“In the first three months of this year, it had a net loss of $103 million. (For all of 2010, its loss was $414 million.) What is it spending money on? Well, $180 million was spent on online advertising in the first three months of the year. It’s also paying 7,000 employees, which isn’t cheap.”

Basically, Groupon needs an ever-increasing army of employees to combat the omnipresent threat of local daily deal sites. They also need to spend a ton on marketing in an attempt to drown out the voices of competitors.

How do you get growing again?  One model to study comes  from ALDI, the Batavia, Illinois based grocer.  Part of the German ALDI company, the U.S. division is completely independent.  Now open in 29 states, with over a thousand stores, ALDI is a good example of Value Innovation in action.  They have taken a commodity, low margin business and pinpointed a way to deliver exceptional value.  How are they unique?  Consider:

1.  They only offer about 1,200 SKU’s vs. the 25,000 found in today’s typical grocery store. By limiting their product array to the most important core items, they drive volume for the products that count the most, dramatically reducing real costs.  They pass the savings along to their customers.

2.  80% of their products are private label (“own brand”). They have found that most consumers are ready to make the move from national brands because the “quality” stigma has disappeared.  In fact, ALDI has invested heavily in their own test kitchens where they test every product six times per year to ensure high quality.

3.  They let customers do much of their own work to help keep their rates low. From cut case/pallet merchandising to “rental” grocery carts, the focus is on keeping operating costs low in order to keep customer prices low.

ALDI’s initial U.S. focus was on the low-income shopper.  But their products have continued to improve and move more upscale.  The hard work is paying off for ALDI as they are now reaching an average customer with $65,000 HH income.  Their growth suggests that when the economy is healthy, they do well.  But, when times are tough, they even do better.  ALDI creates real value for customers at a lower cost while attracting new customers with their unique offering.

Here’s a look at a recently opened store in Chicago and it’s importance to the revitalization of a part of the city hit hard by the recession.

Der Spiegel has written a great perspective piece on Boeing’s Dreamliner.  Here are a few of the highlights:

Eight years ago, managers at the American airplane manufacturer Boeing had a brainstorm. Their idea: Build airplanes the same way the automobile industry manufactures cars, with contractors producing entire components that are then assembled in a final step. That dream resulted in Boeing’s new long-range 787, the first model to be built using this modular principle. And perhaps it was that approach that inspired the plane’s name: Dreamliner.

So far, though, not one of the planes, which cost up to $185 million each, has been delivered to buyers.

Hardly any other project, with the exception of Airbus’ A380 wide-body jet, has fueled the imaginations of aviation experts and fans around the world as strongly as Boeing’s hypermodern showcase jet.

When the project officially began in 2003, it looked as if a new era in civilian aviation was about to dawn. Boeing managers promised their passengers more room, better cabin air quality and larger windows made of “smart glass” which could be adjusted to let in different amounts of light. It was all to be made possible by the increased use of a novel composite material called carbon fiber reinforced plastic (CFRP), instead of the traditional aluminum. The efficient new jet was also supposed to consume 20 percent less fuel and be easier to maintain.

Then there was the production process, which seemed even more revolutionary than the technology. According to Boeing’s plans, final assembly of the new jet would take just three days. To achieve that aim, the company even tossed out traditional industry rules which hold that production of complex airplanes is best entrusted to experienced teams and that important components should be constructed at the main production facility.

Instead, Boeing outsourced the production of the aircraft’s components, including important parts such as the plane’s wings and enormous fuselage, to around 50 subcontractors around the world. Boeing CEO James McNerney stated that the company would retain responsibility only for design, development, assembly and customer care. “The R&D investment level and risk-sharing model with suppliers was deemed appropriate at the time,” a Boeing spokesperson says today, in justifying the decision.

But revolutions always require sacrifices. It was a lesson Boeing learned the hard way. Nearly 60 customers worldwide are waiting for the 787, with first delivery now postponed for the seventh time. Even if the first of the 843 jets ordered so far is delivered to All Nippon Airways late this summer as planned, it will prove difficult to make up a delay that now amounts to three years.

Revolutions not only requires sacrifice, they can be extremely bloody.  Boeing is clearly going to pay the price by not listening to their internal Most Important Customers (experienced engineers) who never signed on to they radical approach Boeing took.  The amazing thing is how risky their approach has been.  In an industry with as few a players as airline manufacturing has, quantum leaps in value are not required.  Wouldn’t incremental innovation (like using new materials) have sufficed?  Instead, they have bet the farm on this and the results are not encouraging.

Or do you think they should have just bitten the bullet and gone all in?

When you look at this picture what do you see?  Or better, yet, what don’t you see?  While this young girl is apparently entranced with her hand-held video game, she isn’t looking out the window.  In fact, she has absolutely no idea where she is headed.  She must rely entirely on the driver to safely get her to the intended destination.  But, this post isn’t about being your kid’s chauffeur.  It’s about how important it is to look for insight when discovering a new Value Innovation (a Blue Ocean).

On a recent drive with my newly licensed teenage son, we needed to go to a store that neither of us had been to before.  It was near a major intersection that we both had traveled through many times before.  The trail there was clear, the landmarks were apparent.  Unfortunately, when I told my son where to drive, he said he had no idea where this was.  I was a little puzzled by his response. I asked this otherwise intelligent and witty young man what he was talking about.  He responded with one if those little insightful observations that have the power to drive important market change:  ”Dad,  how would I know?  You were always driving.”  Yes, I replied, but you were in the back seat looking out the window.  Didn’t you pay attention to where we were going?  ”No”, he replied.  ”I was always playing with my Game Boy.”  This was the obvious response.  What should I have expected by providing him that Game Boy years before?

This is not really a story of how one technology (hand-held video games) replaces another.  As a teenager, my only diversion was low tech:  looking out the window.  Landmarks were emblazoned on my mind because that’s all I was seeing.   My sense of direction was good when I started to drive because I had spent so many hours observing where I was going, not staring at a tiny screen in the backseat.  In “Outliers”, Malcolm Gladwell shows us how successful people don’t come by it accidentally; they usually spend upwards of 10,000 hours in performing an activity before becoming excellent at something.  In my case, staring out the window for at least 5,000 hours had prepared me to have a good sense of direction.  My son?  Not so much.

This story is about our ability as business people to observe these kind of differences as we explore potential Blue Oceans.  In this case, what are the implications that an entire generation of kids getting their drivers license have no idea where they are going, even in their own home town?  If I was a GPS manufacturer, iPhone app developer or auto manufacturer, this is the kind of non-customer insight that can open an entirely new market space.   Successful Value Innovation depends upon your ability to understand what non-customers are really seeing, or in this case, or not seeing.  Either way, can make a dramatic difference in your offering.

A prospective client recently asked me what I thought the simplest way to grow his business given the current economic conditions.  He said he didn’t have “time to waste on process, workshops and a bunch of consultant mumbo jumbo.”  I told him the answer was simple:  ”Just hire a genius”.  I explained that if he Googled the word “genius” he would quickly see links to Albert Einstein and Steve Jobs.  Since one was dead and the other was in the midst of creating the most valuable enterprise in the world, he might have to look elsewhere.  The simplest, and least costly way is to unlock the genius within.  But to do that requires preparation and mobilization.  There really are no simple answers.  You cannot make up for lost time and just have to pick a path and get after it.

As an entrepreneur, I have always zigged while others zagged.  That’s what has come naturally for me.  In a commoditized world, I believe differentiation (with a reduced cost structure) beats following the crowd more times than not.

So, hire the genius within.  That’s where the real value is for your company whatever size you are.  That’s the key to your simple success.

Ingredients:  one plain glass window (in this case at the SoHo Design Within Reach Tools for Living store), some white markers and one talented local artist.  Voila, you have transformed existing space into something rather spectacular.  But, this isn’t just clever merchandising/marketing.  It reflects an attitude of design thinking and innovation.  Non-customers will be drawn to this art for it’s originality and personality.  Anyone can transform their business without spending a lot of money, so just do it.

Starbucks is moving to unlock new demand with a second brand this week: Seattle’s Best.  At first blush, this may not seem particularly different.  But, if you read the company’s announcement on Tuesday, Value Innovation thinking jumps off the page in the form of the much maligned coffee vending machine.

We know how bad these things can be from hospital visits, factory break rooms and car dealer waiting areas.  So, a key component of the “re-birth” of the brand is by creating a new kind of machine that will deliver a better coffee taste and experience.  Other potential Value Innovations:  they will also be stocking convenience stores (where there is no major national brand across over 100,000 stores), kiosks and lunch trucks.   Additionally, Starbucks will be adding  franchise stores to try to stall Dunkin Donuts rapid expansion.

Essentially, Starbucks, with only 4% of the domestic market for brewed coffee, sees huge possibilities for regular folks who just want better coffee.  Between Via (instant coffee), the rapid expansion into grocery and mass merchandisers and this new Seattle’s Best rollout, is there another consumer brand company as active as Starbucks right now?

You are looking at Ingvar Kamprad, founder of IKEA, arguably the wealthiest person in the world.  In 1976, he spelled out his concept of frugality and enthusiasm in A Testament of a Furniture Dealer. As the company has spread around the globe it has offered the cornerstone of Blue Ocean Strategy in their products, services and customer experience:  increased value at a lower cost.  A trip to IKEA is always a wonderful experience and my recent stop in the Austin, Texas store was no exception.  Their fresh merchandising and marketing approach always surprises as well.  Here is a example of a promotion in the Paris Metro underground this spring, giving passengers a reason to “wait with IKEA”.

This got me to wondering about how to create a new Blue Ocean in the industry and I believe I have found it.  A French company called My Fab myfab.com is revolutionizing the supply chain by eliminating middle men from the equation, crowdsourcing demand and drastically reducing price points.  They bill themselves as the first direct from the factory internet platform with real time product tracking.

Now available for California buyers, Myfab will be expanding its U.S. presence soon.  If you are interested in business model innovation and unlocking new demand, this is a company and business model worth studying.

In their revamped recovery strategy, Starbucks is moving their Via instant coffee product out of their stores and onto the shelves of a mass merchant near you.  The WSJ reports that creating a “very significant consumer packaged goods business” is a “centerpiece of their new growth strategy.

Starbucks as the “third place” was a dramatically successful Blue Ocean Strategy. We reported that the Via launch also qualified. It was much more than a brand extension because it opened a new front for instant coffee, an old, boring category known for its bitter taste. Research indicated that a majority of adults under the age of 40 had never tried instant coffee. Starbucks reinvented this category by discovering that non-customers who could not afford a $4 latte, did not have time to stand in line or did not enjoy the Starbucks “conversation” experience would consider drinking an easy to brew Starbucks product in their office, home or on the road.

But Starbucks will face new challenges as they attempt to capture a Blue Ocean grocery market, specifically distribution. It’s a different game than they are used to playing.  For now, they are going solo, chasing the upside of more profits.  Don’t bet against a rejuvenated (recaffeinated?) Howard Schultz as he understands the power of creating Blue Oceans to make the competition irrelevant.

Penguin Books have stayed on the leading edge of publishing for years with Blue Ocean thinking including leather-bound pulp novels and classics.  Now, they are seizing the day with the iPad.

Via paidcontent.org “The iPad represents the first real opportunity to create a paid distribution model that will be attractive to consumers,” CEO John Makinson told FT’s Digital Media & Broadcasting Conference. “The psychology of payment on tablets is different to the psychology on a PC.”

But Penguin’s thinking bigger than just the one device. Makinson said he sees ebooks hitting 10 percent of book sales next year (it’s currently four percent in the U.S. and Penguin’s ebook sales)…

“We will be embedding audio, video and streaming in to everything we do. The .epub format, which is the standard for ebooks at the present, is designed to support traditional narrative text, but not this cool stuff that we’re now talking about.

“So for the time being at least we’ll be creating a lot of our content as applications, for sale on app stores and HTML, rather than in ebooks. The definition of the book itself is up for grabs.

“We don’t know whether a video introduction will be valuable to a consumer. We will only find answers to these questions by trial and error.”