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Blue Nile is the largest and most well known internet diamond seller, but their business model has serious drawbacks. The inability to see their diamonds forces you to pay more for unnecessary upgrades in color and clarity to insure you don’t get stuck with an ugly stone.
You can get much more for your money on a site like James Allen or Brian Gavin Diamonds that has extremely high quality images of their diamonds that allow you to cherry-pick the best diamonds with SI1 and SI2 clarity grades that will be “eye-clean,” thereby saving you a lot of money.
Bluenile.com was founded in 1999 by Mark Vadon. The story goes that around that time Mr. Vadon was shopping for an engagement ring and was fed up with his options.
He felt that diamonds were essentially a commodity, and that all he needed to do was learn about this commodity and then shop for the best price.
He discovered a site online called internetdiamonds.com and was intrigued. He contacted the owner, formed a partnership, and shopped around his idea to the venture capital circuit. The rest, as they say, is history.
Blue Nile’s business model (speaking now only of their engagement ring business which is overwhelmingly their primary source of revenue) is a fairly simple one.
Blue Nile signs exclusivity agreements with diamond wholesalers all over the world that stipulate that these wholesalers can only list their diamonds on Blue Nile and no other online retail site.
The reasons for the exclusivity are simple – Blue Nile doesn’t want their customers comparing prices for the same stone that they’ll find on 3 other sites, and they also want to maintain an edge over their competition in terms of how many diamonds they list as their own at any given time.
Blue Nile takes lists of diamonds from their vendors and uploads them into their database and presents them to customers as if they were their own.
Since these diamonds are located all over the world, it seems likely that Blue Nile would never actually see the diamonds they sell – not before you buy and not after you buy.
My experience working for one of Blue Nile’s vendors for about 7 years suggests this as well.
Based on my personal experience with Blue Nile conducting research for this article, it would also appear that they (at least occasionally) don’t use their own people to mount the diamonds into settings – the setting work appears to be contracted out (see below).
People report that they can call Blue Nile and ask them to inspect diamonds listed on their site to get gemologists’ reports about whether or not a specific stone is eye-clean.
It would appear that all that Blue Nile’s gemologists do in such a case is call the specific vendor who owns the diamond in question and ask them for their opinion of the diamond.
The flaw in the system is that since each vendor is motivated to sell his diamond over his competition’s, he’s always going to push his own stones.
From the vendor’s perspective, the worst that can happen is the customer won’t be happy and he’ll return it – but if the vendor doesn’t push his stone, he knows he won’t stand a chance of closing the sale.
For purposes of this review, I ordered an engagement ring from Blue Nile using a pseudonym.
Figure 1 is a copy of my invoice. As you can see in the invoice, I ordered a 1.01 carat J color SI2 clarity diamond mounted in a simple solitaire engagement ring setting. I couldn’t find any Blue Nile coupon code, so I bought it as is.
Since I’ve already reviewed Blue Nile’s customer support in my Diamond Earrings Review article, I decided this time to place the order online. Their check-out system was very elegant and easy to use.
Blue Nile’s packaging was average at best. See Figures 2 & 3. They ship the ring in a custom-made brown cardboard box with a special cutout in the center for the jewelry box which contains the actual ring.
On top of this is a blue paper envelope with the various documents accompanying the purchase (invoice, appraisal, and diamond certificate). In Figure 3, you can see the actual jewelry box removed from its cover.
I feel that if you’re paying several thousand dollars for a product, you shouldn’t open up the shipping box and see your jewelry box perched in the middle of brown cardboard.
Your initial impression of the importance of a package is how well it is wrapped and presented, and this presentation does not befit the significance of this purchase.
As you can see in my articles on color and clarity, the best value for a round diamond set in a solitaire setting can be achieved by going for a J color diamond and a clarity grade as low as possible that’s clean to the naked eye.
Since with Blue Nile, it’s not possible to review a magnified picture of the actual diamond, I couldn’t choose a clarity grade that would be too low (like an I1), otherwise it would be unfairly likely to have eye visible inclusions.
Compared to Others
On Blue Nile, however, that’s not possible. Therefore, I decided to go with an SI2 Clarity Diamond since most of these are eye clean and this is usually where you find the best mix of value and visual appearance.
As for how I chose this specific stone, I did what I felt most Blue Nile customers would do – I selected the cheapest Ideal Cut J SI2 1 carat stone they had available.
Figures 4 and 5 are images of the diamond itself and the GIA certificate, respectively.
As you can see in Figure 4, this stone has an easily noticeable icy white inclusion in the center of the stone.
This inclusion was easily visible to the naked eye from the very moment the lid was lifted from its presentation box.
This is not a stone I would ever recommend, regardless of budget, but I didn’t have the option of seeing a magnified picture in advance to rule it out.
My research for this article exposes several problems with Blue Nile’s business model. Remember, that the very founding of the company was based on Mark Vadon’s premise that diamonds are a commodity.
The definition of a commodity is that all you need to know is its price to make a purchasing decision (ie, a bar of gold is a bar of gold and a bushel of wheat is a bushel of wheat – the only variables are quantity and price).
But can diamonds really be evaluated by price alone? Yes, it’s true that if you’re dealing with VVS clarity round ideal cut diamonds, then all you really need is the diamond’s price to figure out if it’s a good deal or not.
The Importance of Evaluation
But for just about every other category of diamond, that just isn’t the case. You need to see at least a photograph of the diamond to evaluate its cut (primarily in the case of fancy shapes) and, just as importantly, to evaluate the diamond’s clarity.
Blue Nile treats SI2 clarity Oval Cut diamonds just as they do Flawless Ideal Cut Round diamonds.
Anybody with any experience in the diamond business knows that this is absurd since the vast majority of Oval cut diamonds are very poorly cut and there’s no way of identifying the nice ones using a certificate alone – not to mention the problem of potentially ugly eye visible inclusions.
You see, if I had tried to order this same stone from a vendor with physical access to, and magnified pictures of, their diamonds (like James Allen, Zoara, and Brian Gavin Diamonds), there would be two major roadblocks preventing me from shooting myself in the foot:
1) I wouldn’t make the mistake of ordering this stone because I could see very easily in the picture that the stone has a noticeable inclusion dead center, and
2) Since other companies personally set the diamonds they sell, prepare their own shipments, and perform their own Quality Assurance, they would have seen my selection and before they even set it they would have contacted me to let me know that my choice might not have been the best one.
Better Safe Than Sorry
I’m not claiming they would do this in a case where the stone is borderline (probably because they assume you’ve seen the picture and have decided to take the risk upon yourself), but in a case where the stone is this bad, I believe they would warn you – no store wants to deal with costly returns.
On the other hand, it would seem that Blue Nile doesn’t have first-hand knowledge of what your diamond looks like.
In my case, as confirmed by the Blue Nile customer service agent I dealt with, my diamond was shipped straight from New York to their jewelry contractor in Kentucky.
Realizing the Faults
How did I even think to ask about the ring being put together in Kentucky? Well, take a look at Figure 6. That’s a screenshot of the tracking information for my shipment from Blue Nile.
Blue Nile is based in Seattle. The diamond was from New York and the ring was shipped from Kentucky. It would seem that the Jeweler in Kentucky is not owned by Blue Nile – they are a contracted company.
The reason it appears this way is that Blue Nile does not charge sales tax in Kentucky. To the best of my knowledge, then, it would seem that no Blue Nile employee ever touched the diamond or the completed ring at any stage along the process.
And that brings me to my final concern about Blue Nile: Their appraisals appear to lack credibility. Here’s what I mean:
My total bill for the ring at Blue Nile was $4262. For comparison’s sake, for my review of James Allen, I ordered a very similar diamond and ring (almost identical on paper, but far superior in actual quality).
My total bill from James Allen was $3994. Blue Nile appraised their ring at a value of $7800 while James Allen appraised their ring for $5600.
The purpose of the appraisal is to let the insurance company know what a full retail replacement value of the ring is.
The Pros and Cons of Higher Appraisals
You want a higher appraisal than what you paid because it’ll make your life easier if it gets lost or stolen and needs to be replaced. But you don’t want too high of an appraisal because then that’s just going to make your insurance premiums needlessly higher.
In my opinion, Blue Nile is going way overboard.
Unfortunately, it would seem that the problems run even deeper. Take a look at Figure 7. This is a copy of the appraisal provided by Blue Nile. Notice the arrows I have added for emphasis.
The appraisal states that this Blue Nile employed gemologist, who, according to their customer service rep, works in Blue Nile headquarters in Seattle, has signed off on the valuation given in the appraisal.
Listen – if Blue Nile believes that you, the consumer, can buy a diamond ring without ever seeing a picture of the diamond or the actual ring, then, in theory, it should be OK for a gemologist to appraise a diamond ring without ever seeing it as well (of course, I wholeheartedly disagree with such an assertion).
But Blue Nile appears to actually make the claim that the ring was inspected by the person signing off on the appraisal. This doesn’t appear to be possible if the stone was never sent to Blue Nile’s Seattle headquarters, but rather went straight from the wholesaler to the jeweler.
I was deeply concerned about this issue, and didn’t want to make accusations about a company without fully investigating the issue, so I decided to contact Blue Nile as a concerned customer regarding this specific issue.
Blue Nile’s customer service representative confirmed that the diamond was shipped from New York to Kentucky – never having passed through Seattle.
The Truth About the Appraisal
She confirmed that their contracted jeweler’s employee actually prepared the appraisal, not a Blue Nile employee. She confirmed that the gemologist who signed the appraisal (or, more accurately, whose signature was printed on the appraisal) sits in Seattle and not Kentucky, and had never seen this ring.
When I questioned her on the propriety of this, she said, “well, this is what’s printed on all the appraisals. She is our head gemologist and has many people who work beneath her.”
When I challenged her on the fact that the gemologist who actually did examine the ring wasn’t her employee, she said, “Ok, but I don’t understand why that’s a problem.”
Confronting the Situation
Then I questioned her on the size of the appraisal. Her response was very surprising. She said to me,
“there is no right or wrong when it comes to appraisals. And appraisal can be anything. This is what the person in Kentucky felt the ring was worth. Many companies will tell you that they’ll appraise the ring for double of what they sell it for. Our appraisal isn’t even that bad. You’re welcome to get it appraised again, if you wish, to a number more to your liking.”
After this conversation with the customer service rep, I find it hard to believe that the jeweler in Kentucky even looked at the ring while preparing the appraisal.
If he had, I highly doubt he could have given it such a high valuation, because for what it is – an ideal cut 1 carat J Color SI2 clarity solitaire – it’s about as bad as it can get because of the terribly visible center inclusion.
Blue Nile is clearly a powerhouse of a company. They are the leader in online diamond sales. Nobody can compete with them when it comes to the size of their inventory of loose diamonds, and nobody has nearly as deep of an inventory of engagement ring settings.
It happens often that readers will contact me saying they want to buy a diamond at one place or another (not Blue Nile), but they feel they have to buy from Blue Nile because they’re the only ones who sell the particular ring they want.
In that regard, they are very much in tune with the likes and dislikes of the bulk of diamond consumers out there. But aside from those two points, there are a number of problems with Blue Nile as I detailed in this article.
Reviewed By: Michael Fried
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