Mark Vadon: How I Got People to Buy Diamonds on the Web
Mark Vadon is founder and CEO of Blue Nile, an online diamond and jewelry retailer. Here is a rough transcript of his remarks:
We sell diamonds on the Internet. It seems like a pretty bizarre idea. When listening to the last couple of speakers, a couple things really hit me. One is about how you need 1,000 ideas to get a winner. The hard thing is being an acorn, and I'd like to tell you what it's like.
Blue Nile started in 1999. We started out selling engagement rings on the Internet. If you come to our Web site and you're a confused male shopper, which is really our core audience, you have no idea what to do. Our tagline is "Education and guidance." We offer 23,000 diamonds available,. You choose the diamond for you and the setting for you. We sell diamonds at 40% less than retail. And we ship it to you in less than four business days.
We've been profitable for the last seven quarters. We believe the business works. I just got here from the biggest trade show in the industry. I was in a couple of meetings that were interesting. One reminded me why I got into this business. One was about how to sell diamonds. They said that your profit margin was in direct relationship with the amount of mystery you create about your product: Romancing the stone. In another meeting, another retailer was telling me his philosophy about selling. He'd take an H color diamond -- you might not know what that means -- and he'd tell the consumer it was an E color diamond. That means a couple of thousands of dollars. He told me the consumer wins because he feels like he got an E, but he didn't pay for an E. I had to go and take a shower.
I'm not saying the whole jewelry business is like this. It's not. But it's too much like selling used cars. I first got into this when I was buying an engagement ring. One was $12,000. One was $17,000. I said that's more than my car cost. And I can't tell the difference. So I asked him, and he told me to pick the ring that "speaks" to me. I thought that was bullshit.
I was looking for a fair deal. I was looking for invoice pricing. I found a little store in Seattle that had a Web site. They told me what to buy and what not to buy. It was a mom and pop store. And I bought a ring from him. Over the Internet. I went out to Seattle, had dinner with the guy, and then bought his store. We got funding from Kleiner-Perkins because we had acquired a business that had business already. But a lot of people thought we were going to fail.
It was beginning to feel a little bit like we were against the world. We saw the financials. We knew it was working. And we saw the customers. We get thousands of letters every year telling us about people's engagements. People send us flowers. We get visits. One couple from North Carolina found us and wanted to come and see the people who sold them their diamond. We were seeing incredible customer passion.
Through the dark days of the Net, I kept thinking about a quote from Steve Prefontaine, a runner in the late 60s and early 70s. At the time of his death at the age of 24, he held a lot of running records. He was amazing. He was very short. One leg was shorter than the other. But he refused to lose. "Having a true faith is the most difficult thing in the world. Many will try to take it from you." The more we told people that this made sense, the more people thought we were crazy.
A lot of the business is driven by internally focused pleasure. We work to empower those around us with an overabundance of information to own, act, and make confident decisions based on facts. We see customers spend three weeks on our Web site before they make a decision. They take all the emotion about getting engaged. And they push it into this one purchase. Our competitors follow the old rules of jewelry. We're just trying to break down the barriers to information.
During 2000-2001, the way we held people in place was through completely open information. Just as that wins over customers, it wins over employees. When they know the problems that are out there, they take ownership.
Were very happy today. We're not quite yet a winner, but we're well on our way. And with all the skepticism we faced, we're quite proud of where we are. That's the story of this one acorn.