Why the Rise of Lab-Grown Diamonds Reminds Me of Blue Nile

By Rob Bates | January 28, 2025

In my recent appearance on Paul Zimnisky’s podcast, I discussed how the increasing popularity of lab-grown diamonds reminds me of my time covering Blue Nile.

Blue Nile was founded by financial consultant Mark Vadon in 2000, during the first dot-com boom. Many of the jewelry e-commerce sites created at this time didn’t make it; Blue Nile did.

But not all went according to plan. In 2007, Vadon predicted that Blue Nile would do $1 billion in business in the United States. In the nearly 18 years since, the company has never posted $1 billion in annual revenue; it’s never even come close. In 2022, it was purchased by Signet for a bargain price.

As Blue Nile was the major “disruptive” business to hit our industry before lab-grown, I believe it’s worth comparing what we’re seeing now with lab-grown to Blue Nile’s trajectory. Here are some of the similarities between the two:

Blue Nile and lab-grown were both underestimated by the traditional industry.

In the 1990s, many jewelers believed consumers would never buy an engagement ring online, because it was an emotional purchase. They also said consumers would never buy a high-value item without seeing it in person.

Both those assumptions proved incorrect. Many in the industry also thought that consumers would never buy “synthetic” engagement rings, and that they wouldn’t spend a lot of money on manufactured gemstones. Also wrong.

They both took advantage of the incumbent industry’s issues.

Vadon loved to talk about how, after being treated unpleasantly at a Tiffany store, he went online and bought a stone at internetdiamonds.com. He liked the experience so much, he purchased the site and rechristened it Blue Nile. This purported origin story doubled as a pitch for his business: He maintained that buying from Blue Nile was less stressful than shopping at a traditional jeweler. The company built ads around that concept. “For many people, just having a salesperson in a retail store help them is perceived as pressure,” one analyst told me.

In the same manner, lab-grown companies often talk up (mostly outdated) notions of “the cartel” and “blood diamonds,” as well as the supposed eco-friendliness of lab-growns.

Their fundamental pitch revolves around price.

Lab-grown diamond sellers frequently say their products are the “same” as natural diamonds, they just cost less. The “same” part isn’t completely true; gemological labs can distinguish between naturals and synthetics. But it is true that lab-grown diamonds are real diamonds—and the two types generally can’t be told apart without an expensive device.

Blue Nile (undeniably) sold the same diamonds that one would find in retail stores, at a much lower cost. For a while the site proclaimed, “You’re too smart to shop at a jewelry store.”

Lab-grown companies are now putting out similar messages—as in Diamond Foundry’s X post last year that said the willingness to buy a lab-grown diamond “is defined by whether someone is smart or not. It’s that simple. It may sound a bit undiplomatic to state it so directly but it’s the truth.”

Neither Blue Nile nor lab-grown producers have done anything really different from their “traditional” competitors.

Amazon was a revolution in book selling. On Amazon, you could read reviews by other customers, and you could “look inside” the book. The site tempted you with “if you like this, you might also like…”

Blue Nile, by contrast, added very little to the diamond-buying experience, except the ability to instantly compare prices. It didn’t do much to set itself apart from brick-and-mortar retailers, or to build a well-known brand. This lack of distinctiveness left the door open for other companies to come in. Which they did.

Similarly, lab-grown diamonds are sold the same way as naturals: They’re put in the same products, with the same designs, and they use the same price list and grading scale. The sad part is, growers have the flexibility to do something different—they just don’t.

Jewelry e-tail became more competitive, and so has lab-grown.

Investopedia defines an “economic moat” as a “business’ ability to maintain a competitive edge over its competitors.” Vadon thought Blue Nile had such a moat.

“I’m obsessed with Starbucks,” he told CNN in 2007. “I was talking to one of its executives and asked him why they have grown so much when other people have tried and haven’t. And he said, ‘Well, there are 1,000 little things that impact the customer where we’re 10 percent better than anybody else.’ I think that’s exactly what we’re trying to do: stay focused on all the tiny little details that matter to customers.”

That plan is fine—except James Allen had pretty good customer service too. So did Brilliant Earth. And the barriers to entry for a jewelry e-tailer weren’t that high, given that most don’t own much inventory. So Blue Nile’s moat was actually a small lake.

The lab-grown moat is more like a puddle. Diamond growing has turned out to be relatively easy to get into—and near-impossible to patent. “No one took into consideration how fast the Indians would reach the same technology,” industry consultant Eyal Axelrod said recently on the Rapaport Diamond Podcast. “And when they did, we all know what happened: Prices started decreasing…much faster than anyone expected.”

For both lab-growns and Blue Nile, the economics began to make less sense.

Blue Nile employees have told me the increased cost of Facebook and Google ads were the site’s biggest problem. (Online sales tax, which obsessed the industry, was far less of a factor.) Those ads became more expensive as more jewelry e-tailers sprung up. When you’re selling a commodity product at low margins, you don’t have a lot of breathing room.

Lab-grown faces a different problem. As Axelrod mentioned, the sector has seen extreme price decreases—in spite of constant pronouncements that prices were stabilizing. Those low prices have already knocked a few companies out of business. I expect the consolidation will continue.

People realized that destroying the incumbent wouldn’t be so great.

In a 2006 interview with NPR, Vadon said: “Our biggest competition is all the local jewelers throughout the country. In every town there’s a local high-end jeweler who has been there for many, many years, and that’s who we’ve been taking market share from.”

It’s a little unsettling to look back at Vadon bragging about putting 100-year-old stores out of business. Today, more people understand the role local retailers play in their community—in part because those stores told them.

As much as lab-grown currently claims the moral high ground, that may not last when people learn about the damage they’re doing to African economies or the amount of electricity needed to create these stones. I’m not holding my breath on that, but it’s possible.

Some people will always have a reason for shopping at a store instead of online—and some will always have a reason to buy a natural instead of lab-grown diamond.

In 2007, Minneapolis retailer Mark Moeller told me how he deals with customers who were looking at jewelry online. When someone brought in a list of prices from a site like Blue Nile, he’d tell the customer, “’Give me your credit card, and I’ll match everything.’ You know how many people have handed over their credit card? None. So then I say, ‘OK. Now we’ve established that it is worth something to do business with me—let’s figure out what we need to do.’”

The natural market hasn’t come up with anything so clear-cut. Shoppers are generally cautioned that lab-grown stones have no trade-in value. (Signet has even added a warning to that effect.) For the moment, most customers say that doesn’t matter.

But sometimes it does. Here’s a message that appeared on Facebook, from a person who bought an $18,000 lab-grown engagement ring, and then had the engagement fall through:

While lab-growns have won considerable consumer acceptance, not everyone will want one. Natural diamonds have a mystique. They’re a known commodity. It may not seem logical to insist on a natural diamond, but buying any diamond isn’t necessarily logical. On JCK’s podcast last year, Maryland retailer Constance Polamalu said that when people walk into her lab-grown-only store, some are excited, others “immediately turn and walk right out.” It takes all kinds.

Lab-grown also faces an uphill climb in markets like China and India, where status and authenticity matter more and the middle class is expanding (as opposed to in the United States, where it’s shrinking).

Has lab-grown hurt the natural business? Of course it has, and it will continue to do so. Lab-grown is not going away, just as e-commerce isn’t going away. The people who think that natural will reclaim its former market share are deluding themselves.

One way brick-and-mortar retailers fought back was by lowering prices—something the natural diamond trade has been historically hesitant to do. Some retailers also started their own online stores. De Beers tried that move with Lightbox, with mixed results.

But the key thing was jewelers realized they had to fight for every customer—because they could no longer take for granted that people would just walk in the door. That kept them afloat when dot-coms started to struggle. Eventually the site that said “You’re too smart to shop at a jewelry store” was bought by one.

I don’t know if Blue Nile’s history will repeat itself with lab-growns. The natural diamond business has lost a lot of market share to lab-grown and has a huge battle on its hands. It remains to be seen if it can fight back effectively. I do know that the natural business has woken up and recognizes the threat.

I’ll give the last word to Kate Peterson, the jewelry industry sales trainer who tragically passed away in 2023. If you substitute “lab-grown” for “the Internet,” and “retailers” for “diamond miners,” her quote from a 2007 story about Blue Nile still resonates:

“There is competition from the Internet, but not to the disproportionate degree that everyone makes it out to be. Retailers are quick to point fingers and say the Internet is going to be the doom of our industry. Only if you let it.”

(Photo: Getty Images)