I don't profess to be an expert on the Blue Ocean Strategy, but I can help if anybody wants to know more about it.  Malstrom tends to do a good job of explaining it, but he's also very long-winded.  So I figured I'd answer questions right away, tersely and to the point.  I don't know how many are interested, but I figured I should offer.

 I'll list the three most common questions here.  Read whatever interests you, if any does.

What is a "Blue Ocean Strategy"?

 Any business plan that bypasses the competition with new values is following a Blue Ocean Strategy.  To have a Blue Ocean Strategy, you need to make new values that are not being targeted in an industry.  There are many ways of doing this, which I'll discuss next.

What kind of Blue Ocean Strategies are there?

 Though all of them rely on creating new values ("value innovation"), there's many ways to do this.  For example, you can target people who don't get much focus from your market ("underserved"), as [yellow tail] wines did towards non-enthusiast wine drinkers.  You can target the same groups as the market already does but with a better-suited service, as NetJets did for businesses needing cheap air travel.  You can target people outside of the market entirely by making it more accessible to them, as NTT DoCoMo did with specialized internet-enabled cell phones in Japan.  And many other ways exist too, inside these three general groups: customers on the fringe, current customers, and non-customers.

How does a Blue Ocean Strategy work?

 Simply put, the product does something that the competitors at the time do not do.  By offering something that nobody else does, a brand can be forged which gives the innovator 10 to 15 years of dominance in their new market before capable competitors eat into their new market's share.  You can see this at work in the game industry all over the place: Final Fantasy, Dragon Quest, Grand Theft Auto, Mario, Zelda, Gran Turismo, Mario Kart, Pokemon, Halo, and many other series sell far above their competitors for their market innovations.

 Ask whatever questions you have about Blue Ocean Strategies here.  I'll answer them as best I can.

Does the blue ocean strategy kill existing markets, or coexist. In other words, is the Wii going to choke PS360 to death the way DS has chocked PSP? I know the telephone killed the telegram, but video games may be like CD vs iTunes, where they coexist.

 That's a very good question, and the answer is "sometimes".  A lot of it depends on how well the new product does the job the market wants.  A particularly effective Blue Ocean that targets all groups can completely wipe out the existing market and replace it (as NTT DoCoMo did).  But most simply expand the existing market and reshape it slightly to match the new values.

 In the case of the DS and Wii, it's unlikely that they are going to eliminate the old market.  Their values are close enough to the old market that the markets will merge.  However, understand that this means the old market values that the new market doesn't embrace will lose priority.

Hmmm... for multi player, Wii does a better job imo. Hardcore mltiplayer gamers probably use Xbox live/ PCs though, so that is safe. I am finding single player gaming to be better on 360 than Wii, but I also find that to be true for PSP and PSP isn't doing so well...
Do you think the hardcore wll become marginalized? Or will the new gamers eventually drift towards the center of the gaming circle? The NES had rob and duckhunt and basically did the same thing as the Wii, and then got kids to become hardcore with bridge titles like Mario. Existing PC/arcade hardcore had games like metroid or FF. Then SNES got more people to be hardcore, and then Nintendo lost their market to Sony. Will this likely happen again?

Sky, did Sony use a Blue Ocean strategy with the first Playstation?

Maybe you should make the thread about BOS and Innovator Dilemma ( Disruption )

EDIT:

@Hawkeye

I don't see the Wii model coexist with the PS3/Xbox360 model if Wii continue to be so successfull. The point is that Wii model is too profitable that IMO will drain resource to the other model.

The most intense of the hardcore of a market always become marginalized by a Blue Ocean Strategy. But this is usually because they bring it upon themselves. When the telephone replaced the telegraph, hardcore telegraph supporters refused to switch over. There was no reason to avoid it in the eyes of most people, but they made excuses anyway.

However, when the market is merged instead of eliminated, a portion of the hardcore userbase re-emerges later as product refinements occur. But only those who adapt to the new values.

As for the original PlayStation, yes, there was an element of Blue Ocean Strategy involved, but it was not what most people think of. They targeted an underserved market: countries without a market for video game systems yet. Being a large company, they were able to pull this off and made a name for themselves in video games for a lot of countries. But that was as far as their Blue Ocean went. The rest of their success boils down to lots of financial clout brought to bear, the secret of success in a Red Ocean.

I should probably explain Red Ocean. A Red Ocean is where companies compete for market share on an equal footing. Most markets get to be that way after 10 to 15 years, sometimes less if something drastic happens.

In a Red Ocean market, the company that invests the most intelligently in the userbase's interest is the one that wins. This requires a lot of money in most markets, and new products tend to be direct upgrades of old products.

I think that if both Sony and MS go into the next gen following their current business model it would doom them both. However, if one of them abandons the current model (either to chase Nintendo's strategy or to leave console making entirely) then the other could survive.

There are many examples of similar situations, where a single company survived a disruption of the market by marketing itself to a loyal fanbase as a lifestyle choice. Think Harley Davidson or Apple Computers (in the 90s).

If say MS chases the Wii's market in the next gen, and Sony stays put, then Sony could market itself as the one console for hardcore gamers. Sony could exploit such a situation, and be very profitable. But doing this requires a well thought out marketing strategy and means accepting that your product will not be the market leader.

Hmmm Sky Render this actually interests me quite a bit, I'm assuming you know enough about a blue ocean strategy to know where the market may be heading?

If so, what usually tends to happen in the next 10 - 15 years? Does the disrupting company just continue to evolve their product or is any more innovation/different strategy required to fend off clones of their innovations/strategy?

Also where does this put the companies that are still targeting the 'red ocean'? Does it mean that they'll try to meet the disruption half way? Or do they go directly after the disrupting company?

Nice thread btw