Blue Nile Inc. Business Information, Profile, and History

Company Perspectives:

Our philosophy is simple: Offer high-quality diamonds and fine jewelry at outstanding prices.

History of Blue Nile Inc.

Mark Vadon, founder of Blue Nile Inc., considered himself intelligent, discerning, and in complete control of his life. Yet when he began to shop for an engagement ring, he was in over his head. To the well-educated Vadon, the choices were endless and confusing, due in large part to the commission-based sales of local jewelry retailers. With thousands of dollars at stake, were salespersons truly being honest about the diamonds they were selling? Unwilling and unable to put his trust in traditional jewelry stores, Vadon made a critical decision and went home, where he turned to the Internet for help. What he found was the aptly named Internet Diamonds web site. The rest, as they say, is history. Internet Diamonds was reborn as Blue Nile Inc. in 1999 and in four short years became the Internet's largest online source for fine jewelry.

Dazzled and Confused: Late 1990s

Mark Vadon grew up in New Jersey. His father was an M.D. and his mother sold real estate. An intelligent and adventurous soul, Vadon attended Harvard University, where he received undergraduate degrees in American history and European social theory, then went on to Stanford University for his M.B.A. During and after his higher education, Vadon backpacked around Europe and traveled throughout Asia and Africa. He then became a "Bainie" working in the San Francisco office of Bain & Company, the well known management consulting firm, in 1992. Vadon worked as a consumer products strategist, which proved invaluable in his later endeavors. He was still employed as a Bainie when he began looking for an engagement ring in 1998.

After giving up on traditional retail jewelers and disingenuous salespersons, Vadon started surfing the Web. He found an informative site called Internet Diamonds, which featured detailed descriptions of various diamonds and a toll free number to call for assistance. Vadon found what he considered an outstanding engagement ring at an excellent price. He was so impressed by the online experience--and its business potential--that he contacted the site's owner, Doug Williams, a diamond wholesaler based in Seattle, Washington. Vadon then flew to Seattle, met with Williams, and expressed an interest in buying the diamond web site if he could raise the necessary capital.

Vadon returned to San Francisco and met with a number of venture capitalists. By late spring in 1999 the 29-year-old Vadon had raised an initial $6 million in funds, selling his idea with relative ease in the dot.com boom. Vadon then lined up suppliers and distributors and turned Internet Diamonds into a full-service, user-friendly online store to sell baubles to bachelors.

After sealing the deal in May 1999, Vadon renamed the fledgling company "Blue Nile," which he considered more in tune with his goals for the online jeweler. Within a few months Vadon had raised another infusion of capital for Blue Nile, this time $32 million, $10 million of which went into a major marketing thrust launched in November. The massive print and television campaign was created by the San Francisco office of Leagas Delaney, which had made a name for itself promoting a host of clients including Adidas, Goodyear, Harrods, Hyundai, and watchmaker Patek Phillipe. Most of the campaign went into television advertising and targeted sports-related events including ABC's Monday Night Football and ESPN programming. Whether it was the advertising blitz or word of mouth, sales for Blue Nile's maiden year reached $14 million, while online shopping as a whole racked up total retail sales of almost $26 billion for the same period, according to statistics published in USA Today (October 23, 2003).

Diamonds Are a Guy's Best Friend: 2000 to 2001

By 2000 the Internet's overcrowding began to thin as dot.coms, large and small, failed. Blue Nile, however, did not stumble or fall--instead it flourished. Early in the year Vadon was again raising funds, and one investor of note was Microsoft cofounder Paul Allen's Vulcan Ventures Inc., who joined a host of well known firms willing to bank on Blue Nile's future. Part of the funding went into adding new products to Blue Nile's online store while remaining true to its status as a luxury jeweler. Sterling silver trinkets and classy watches (á la Swiss Army, Tag Heuer, Seiko, and Kenneth Cole) joined the web site's now famous diamonds. Blue Nile was cautious, however, not to expand into noncore items and stayed within the bounds of fine jewelry. The addition of the lower-priced sterling silver pieces helped attract customers who would not spend thousands for jewelry, and Vadon and his marketing staff also believed silver would attract more women to the Blue Nile site, which still catered primarily to men.

Much of the e-tailer's appeal was its no-nonsense approach to selling. The company web site was divided into simple categories for prospective buyers, with headings for engagement rings, jewelry, watches and accessories, or shopping by specific product (earrings, men's or women's items) or material (diamond, pearl, gold, platinum, etc.). Yet most impressive about the Blue Nile web shop was its emphasis on knowledge. An educated consumer was Blue Nile's best customer and a plethora of information was just a mouse-click away.

Presented in a straightforward manner under the link "Education," Blue Nile provided online shoppers with subheadings about diamonds, pearls, gemstones, platinum, gold, silver, and even pewter, while its "Buying Guide" was broken down into categories such as engagement rings, necklaces, bracelets, watches, and other fine gifts. Since diamonds were Blue Nile's claim to fame, the diamonds link had anything and everything shoppers would want or need to know about purchasing the ultimate rock, especially under the "Build Your Own Engagement Ring" link and subsequent pages.

Blue Nile not only thoroughly covered the famed four Cs of diamond buying (color, clarity, cut, and carat weight) but threw in two additional all-important Cs as well--certification and care. Even the labyrinthine grading system of the Gemological Institute of America (GIA) and American Gem Society Laboratories (AGSL) were broken down into simple terms, since every Blue Nile diamond was certified by either the GIA or the AGSL (certificates were available for viewing online).

By the end of 2000 Blue Nile had gained a reputation for excellence and was lauded by business and lifestyle publications, including accolades from Forbes magazine as a "Forbes Favorite" among Internet retailers, and voted Fortune magazine's "Best of the Web" jewelry site. Blue Nile finished fiscal year 2000 with sales of $44.4 million.

In 2001 Blue Nile began researching a leap of faith--into actual retail stores bearing its name within the next several years. Despite being founded as the antithesis of traditional jewelry retailing, it was believed that Blue Nile's three largest markets (New York, San Francisco, and Seattle) might benefit from physical locations. The stores, however, would remain true to Blue Nile's basic business tenets, i.e. no commissioned sales staff, no hard sell, plenty of information and assistance. The pluses to the proposed storefronts included off-the-street impulse buyers, the opportunity to try on jewelry, and further branding of the Blue Nile name.

Blue Nile's sales and products continued to grow in the spring and summer of 2001. Then came the terrorist attacks of September 11th, and businesses throughout the United States and abroad suffered. Blue Nile was no exception; yet before the end of the year sales rebounded. Not only were sentimental favorites like engagement rings and engraved lockets in high demand, but Blue Nile's patriotic sterling silver bracelet--adorned with a flag--sold out several times over. While it was not possible to determine whether Blue Nile's sales would have reached the same levels for 2001 if September 11th had not happened, the firm's ongoing success was no fluke--sales for the online retailer reached $48.7 million for fiscal 2001.

All That Glitters Is Not Just Gold: 2002 and Beyond

More praise came in 2002 from Time magazine, when Blue Nile was called "Best Indulgence" from the periodical's "Best Websites for Business" roundup. Blue Nile had not only more than quintupled its sales in a mere three years (from $14 million in 1999 to a phenomenal $72 million for 2002), the firm had become the Internet's largest online jeweler with more than 30,000 independently certified diamonds to choose from and dozens of settings in gold, platinum, and sterling silver to dazzle even the most selective buyer. More significantly, at least to many, was the pricing--as much as 20 to 40 percent lower than traditional jewelers, along with free shipping, and a 30-day money back guarantee.

According to a Time magazine article in February 2003, online jewelry sales topped $1 billion for 2002 and Blue Nile had become the major player in the virtual jewelry trade. Many Internet shoppers came directly to Blue Nile through its "anchor tenant" agreements with AOL, MSN, and Yahoo. All shoppers had to do was click a jewelry tab on any of the three browsers to arrive at Blue Nile's home page. The simplicity and effectiveness of Blue Nile's browser links mirrored its matured approach to advertising--favoring less expensive online ads and direct mail over much more expensive ads for television, print, and radio.

In 2003 Blue Nile received a rare commendation from Bizrate.com, the Internet retailing rating service, by earning its "Circle of Excellence" Platinum Award. The Platinum Award, like its namesake, denoted the best of the best--in this case the top e-retailers who met a stringent set of criteria. Only 20 Internet retailers were so honored and Blue Nile was among them. Another online rating service, Internet Retailer, declared Blue Nile as its "Best of the Web" recipient in 2003, while Blue Nile also received mentions in a number of publications including the Washington Post, USA Weekend, Time, InStyle, U.S. News & World Report, Newsweek, Fortune, and Forbes. If sales for fiscal 2003 measured up to all the praise at a projected $120 million, it would be Blue Nile's best year ever.

Mark Vadon believed Blue Nile's outstanding success was due in large part to bucking the usual retail trends. As he commented to USA Today in October 2003, "Everything we do is heresy. Instead of marketing to women, we market to men. Instead of trying to push our gross margins as high as possible, we sell as cheap as we possibly can. Instead of hiding information, we're all about educating our consumer and making him feel comfortable." Obviously, many men did feel comfortable buying from Blue Nile's well-stocked virtual shelves and turned the relatively young e-tailer into a winner. Women, too, had begun shopping at Blue Nile and its client base continued to grow as did the company's headquarters. Blue Nile's 115 employees moved to new office space of more than 20,000-square feet in Seattle.

Buyers, investors, and sweethearts, as well as Wall Street, had become acutely aware of Blue Nile's status in the online jewelry trade. It seemed as if Blue Nile's future was sparkling as brightly as one of its flawless, colorless, large-carat Asscher-cut diamonds.

Principal Competitors: Ashford.com; Costco Wholesale; Diamonds.com; DirtCheapDiamonds.com; Tiffany & Co.; Zale Corporation.

Chronology

• Key Dates:
• 1998: Mark Vadon searches for the perfect engagement ring.
• 1999: Blue Nile Inc. is established in Seattle, Washington, as an online jewelry site.
• 2000: The firm adds sterling silver and upscale watches to its inventory.
• 2001: Blue Nile launches its "Signature" collection of top-rate diamonds.
• 2002: Time magazine names Blue Nile as a "Best Indulgence" in its "Best Website for Business" rankings.
• 2003: Blue Nile is one of only 20 Internet retailers to receive Bizrate.com's "Circle of Excellence" Platinum Award.