The CEO of online diamond retailer Blue Nile is counting on customers going all out for a beautiful ring--in spite of the downturn.

The diamond business is cold as ice.

Several respected diamond retailers have gone out of business, and others are struggling to stay afloat.

But while diamond retailers may be dropping like stones, that doesn't mean that people aren't getting engaged--and that still means, in most cases, a diamond ring.

Diane Irvine, CEO of the largest online diamond retailer, Blue Nile ( NILE - news - people ), hopes that also means that her company is a buyer's--and a girl's--best friend.

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"Based upon budgets today, some people might be buying a diamond eternity band as opposed to a diamond solitaire," says Irvine. "But by and large people want to maximize their budgets and buy a beautiful ring." While the average price of a Blue Nile ring has dropped from $6,200 in 2007 to $6,000 today, the average carat (0.9) hasn't changed.

In fact, Irvine is counting on the new frugality to drive the Seattle-based business. "People may not be opting to buy discretionary jewelry," she says, "but they are still getting married."

"Of the online jewelry stores, Blue Nile is top of the heap," says diamond-industry analyst Kenneth Gassman. "They have helpful sales people, a broad selection and good prices. Men can go online and get educated and look at the diamond the way an engineer would."

Blue Nile has 60,000 diamonds and several hundred settings to choose from, as opposed to the typical dozen or so underneath a glass case at a local jeweler (which still makes up the majority of the fragmented U.S. diamond market). But what might be more important these days is that Blue Nile offers a 20% to 40% discount off the average retailer.

It also takes great pride in its quality of diamonds. In 2006, the site set an online diamond purchase record with the sale of a $1.5 million 10-carat diamond of "flawless" grade and "D" color (the highest color and clarity available).

"If you can buy this high a quality of diamond at this much less, why wouldn't you?" asks Irvine.

Well, for starters, there's that little blue box tied with a white bow--the one that says Tiffany ( TIF - news - people ).

"We're the other blue box," Irvine says defiantly. She doesn't just mean this metaphorically: Blue Nile's box is also blue, though it is dark navy as opposed to Tiffany's robin's egg shade. "At the end of the day, the woman says, 'This is the most incredible ring I could have received,' and the man says he got the best diamond for his money," Irvine says.

Blue Nile can keep its prices below average because it doesn't purchase the diamond from the supplier until the consumer does--which means it can pass along daily or long-term dips in diamond prices (down 15% the past 12 months). After a diamond is bought online, the gem is shipped from the supplier to Blue Nile, set in a ring and then overnighted by Federal Express to the purchaser at no additional charge. Because Blue Nile is one of the largest diamond retailers, it can also use its volume of buys to negotiate prices downward with dozens of international suppliers.

Like the rest of the industry, Blue Nile has suffered--sales were down 7.5% to $295 million in 2008--but it has done comparatively better than its collective online rivals, whose sales dropped an average 12%, according to comScore statistics. And while U.S. diamond sales plummeted 25% in the fourth quarter, the company's stock has doubled to $37 since its January low; last year its share of the U.S. engagement ring market rose to 4.5% from 4%.

From its start in 1999, the company has struggled to compete with the Tiffanys and Harry Winstons of the world, but thanks to customers like Sanjay and Amy Bhargava, Blue Nile's engagement ring sales now rival Tiffany's, which has a selection of about 2,000 engagement rings online.

By 2008, the Cleveland couple had been dating for three years, and Sanjay, 34, by his own admission was on an Amy-imposed engagement "deadline"; that meant buying an engagement ring. During a trip to New York City that year, Amy, 33, led him into Tiffany. But while this gave the soon-to-be affianced pair a chance to scout diamonds, neither was happy with the service or the inventory.

Back at home, they visited some local jewelry stores, but again, quality was a concern. Then one of Sanjay's clients suggested Blue Nile. "The client spent 45 minutes explaining to me what to look for--the four C's," says Sanjay, referring to clarity, color, cut and carat weight.

Amy, for her part, had also heard about Blue Nile and sent Sanjay a big hint with an e-mail link to the site. By that time, Sanjay had already been on the site. Impressed with what he saw, as well as the personalized service from the customer service line, he purchased a 2.2 carat princess cut in a Petite Trellis platinum setting for $20,000 and proposed on New Year's Eve. "Amy is down to earth and didn't expect a 2.2 carat diamond," says Sanjay. "But I wanted a ring that would be with her the rest of her life--no need for an upgrade."

"There is a bit of a stigma about where you get a diamond," admits Amy. "But when people see the ring and the quality, the stigma is instantly gone. They want to go online and check it out for themselves."

While less than 10% use third-party financing offered through Bank of America ( BAC - news - people ) or Bill Me Later on the Blue Nile site, most put it on their credit cards. Blue Nile customers can call the 800 number and receive a personal service representative who walks them through the entire buying process--Sanjay spent six hours over the course of three weeks talking to his rep.

Customers, who don't get to see the ring until its arrival, can return it, no questions asked, within 30 days.

And while buyers may be increasingly intrepid--and trusting--about spending money on luxury goods online, there's still marketing and audience-development work to be done.

This year, Irvine will concentrate on upgrading the site's graphics, making it even more user-friendly so that hundreds of combinations of desired settings and diamond cuts can be searched more quickly. There will also be higher-quality, bigger photos, and Irvine wants to start a customer loyalty program.

International sales, which rose 62% in 2008, remain an important part of the company's expansion plans. Last week, Blue Nile launched a program so that 35 international markets could make purchases in their local currency. "Theoretically," says Irvine, "this should remove one more emotional hurdle to buying online."

Blue Nile by the Numbers

$450 million--total worth of diamonds on sale on the site

0.9--the average carat diamond sold on the site

25-45--the age range of target customer

70%--percentage of purchasers who are men

$6,000--average amount spent on a ring

10--cuts of diamonds available

75%--percentage of diamond purchases made by first-time buyers

3--average number of weeks from first going on the site to buying a ring

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