How diamonds took over the world

This is in response to Startup Edition’s prompt for this week: What is the single greatest startup hack you’ve seen?

Since I know nothing about startups or hacks or great things, I appealed to my cofounder Deven for advice. He suggested two things. One, the epic arbitrage that the Rothschild ‘bank’ engineered by strategically placing four brothers in different financial centers around the world and hiring the fastest ships to swap information before the general public could. Two, diamonds.

Since he said I’d have to read a giant book to learn about the Rothschild and I had about two days to write this post, I decided to go with diamonds.

This response interprets every aspect of the question loosely, but I think there’s still quite a valuable lesson to be found somewhere here in the rough. If you find it, let me know.

Behind the modest, lowly diamond lies pretty much the greatest marketing scheme of all time. The diamond market is a monopoly, and it has been flourishing without fail for almost a century now. In fact, I’m getting most of my information from an article published in 1982, and it’s incredible to see how little has changed in over 30 years.

Long story somewhat shorter, diamonds were pretty scarce until just about the end of the 19th century. But then a bunch of people found a shitton of diamonds in Africa, and they were like oh shit, this is totally going to deluge the market and devalue diamonds. So they decided to all band together in 1888 and form the De Beers Consolidated Mines, Ltd. company, which promptly took over pretty much every aspect of the diamond industry ever.

In economics we learned that you can tell when a monopoly exists by how goods are advertised. If specific brands are advertised, such as “Crest toothpaste”, there’s no monopoly. But if the very good itself is advertised, such as “diamonds are forever” - you’ve got a monopoly. Not only did De Beers own every single mine in southern Africa, but they also had diamond trading companies in England, Portugal, Israel, Belgium, Holland, and Switzerland.

De Beers has been so successful that unlike pretty much every other commodity on the face of the planet, the price of diamonds has risen virtually without fail every single year since the Great Depression.

This is a chart of the price of a 1 carat D loupe clean diamond from 1960 to 2010:

Mmm...diamonds...

How did De Beers manage this? They realized they had control not only supply of diamonds, but manufacture demand for them as well.

After World War I, the demand for diamonds had drastically dropped in America as “the result of the economy, changes in social attitudes and the promotion of competitive luxuries.” Not only had the volume of diamonds sold dropped by 50%, but the quality of the diamonds being sold had dropped by 100%. Diamonds were pretty much unheard of everywhere but America, and even there, they were far from holding the exclusive monopoly on engagement ring jewels that they do now.

To counter this, Harry Oppenheimer, the son of the founder of De Beers, recruited the advertising agency N.W. Ayer to revitalize the popularity of diamonds. N.W. Ayer promptly set to work and determined that they would romanticize the diamond and plant the notion in the minds of young men that diamonds were a gift of love, and that the bigger the diamond bought, the greater the expression of love. At the same time, women had to view diamonds as a crucial part of any relationship.

How do you change popular opinion on a mass scale? Movies.

Movie idols, the paragons of romance for the mass audience, would be given diamonds to use as their symbols of indestructible love. In addition, the agency suggested offering stories and society photographs to selected magazines and newspapers which would reinforce the link between diamonds and romance. Stories would stress the size of diamonds that celebrities presented to their loved ones, and photographs would conspicuously show the glittering stone on the hand of a well-known woman. Fashion designers would talk on radio programs about the “trend towards diamonds” that Ayer planned to start. The Ayer plan also envisioned using the British royal family to help foster the romantic allure of diamonds. An Ayer memo said, “Since Great Britain has such an important interest in the diamond industry, the royal couple could be of tremendous assistance to this British industry by wearing diamonds rather than other jewels.” Queen Elizabeth later went on a well-publicized trip to several South African diamond mines, and she accepted a diamond from Oppenheimer.

A copywriter also came up with the catchphrase “A diamond is forever”, which rapidly ascended to become the official motto of De Beers and is now ubiquitous in the minds of people everywhere. It’s held in popular, seemingly unshakable belief that a diamond is somehow indestructible and will last forever (just like the love it symbolizes), despite the fact that a diamond can be “shattered, chipped, discolored, or incinerated to ash”. Incredible.

Diamond sales skyrocketed, but there was still some resistance to the notion of a diamond as a proper engagement ring jewel. N.W. Ayer decided to up the ante, and essentially began controlling every aspect of media being published about diamonds. They turned to television and arranged more celebrities to appear on the set with diamonds. They set up a Diamond Information Center and essentially manufactured tons of press about diamonds, and then made it seem legitimate by approving it by the DIC. They made the DIC seem like the foremost authority on diamonds, and consequently ensured that every news source came straight to the DIC when they wanted to publish anything about diamonds anywhere. Hence, they controlled not only all the diamonds in the world and pretty much all the trading centers for the diamonds, but also all the media about diamonds. Everything, fabricated by one unfathomably insidious company, pervasive and omnipresent everywhere.

The result?

Toward the end of the 1950s, N. W. Ayer reported to De Beers that twenty years of advertisements and publicity had had a pronounced effect on the American psyche. “Since 1939 an entirely new generation of young people has grown to marriageable age,” it said. “To this new generation a diamond ring is considered a necessity to engagements by virtually everyone.” The message had been so successfully impressed on the minds of this generation that those who could not afford to buy a diamond at the time of their marriage would “defer the purchase” rather than forgo it.

But De Beers didn’t stop there. They were dead set on taking over the world. Only problem? The rest of the world didn’t give one shit about diamonds. Well, actually, that’s no problem at all. Here’s how they took over Japan:

Until the mid-1960s, Japanese parents arranged marriages for their children through trusted intermediaries. The ceremony was consummated, according to Shinto law, by the bride and groom drinking rice wine from the same wooden bowl. There was no tradition of romance, courtship, seduction, or prenuptial love in Japan; and none that required the gift of a diamond engagement ring. Even the fact that millions of American soldiers had been assigned to military duty in Japan for a decade had not created any substantial Japanese interest in giving diamonds as a token of love.

J. Walter Thompson began its campaign by suggesting that diamonds were a visible sign of modern Western values. It created a series of color advertisements in Japanese magazines showing beautiful women displaying their diamond rings. All the women had Western facial features and wore European clothes. Moreover, the women in most of the advertisements were involved in some activity – such as bicycling, camping, yachting, ocean swimming, or mountain climbing – that defied Japanese traditions. In the background, there usually stood a Japanese man, also attired in fashionable European clothes. In addition, almost all of the automobiles, sporting equipment, and other artifacts in the picture were conspicuous foreign imports. The message was clear: diamonds represent a sharp break with the Oriental past and a sign of entry into modern life.

The campaign was remarkably successful. Until 1959, the importation of diamonds had not even been permitted by the postwar Japanese government. When the campaign began, in 1967, not quite 5 percent of engaged Japanese women received a diamond engagement ring. By 1972, the proportion had risen to 27 percent. By 1978, half of all Japanese women who were married wore a diamond; by 1981, some 60 percent of Japanese brides wore diamonds. In a mere fourteen years, the 1,500-year Japanese tradition had been radically revised. Diamonds became a staple of the Japanese marriage. Japan became the second largest market, after the United States, for the sale of diamond engagement rings.

Yeah. Oh, and guess what? You can’t sell diamonds, either. Turns out the small diamonds sold in jewelry and engagement rings are practically worthless. Even large stones in jewelry are generally flawed (with the flaws covered tactfully by the setting) and can’t be remarketed as investment grade. That’s the brilliance behind it - every year, De Beers can mine more diamonds, and there is never a resale market. Almost all the diamonds ever sold remain sold and are thus removed from the marketplace, ensuring that there is a constant steady demand for the new diamonds De Beers mines.

Diamonds in jewelry are generally sold at an insane markup - if you ever try to sell a diamond, you’ll be lucky to get a third of what you paid for it back. Moreover, the ingenious marketing positioning of De Beers ensures that most people don’t even want to sell their diamonds - diamonds are forever, and are a symbol of everlasting love to be kept and cherished forever. To sell a diamond would be like disregarding that love and pawning it. You wouldn’t want to do that, would you?

In closing, it’s almost shocking how manipulable trends and people are. I suppose we really do just take our cues from everyone around us, and everyone around us just takes their cues from the people who tell us which cues we should be taking. Remember when we all used to wear hats?

WHAT HAPPENED?!?!?!

It sucks to feel so manipulated. Some part of me hopes future startups won’t take a lesson from this and figure out how to entirely manufacture enormous demand for an entirely arbitrary and unnecessary good entirely from scratch, and then control both demand and supply singlehandedly for almost a century. Well, unless I’m doing that. Then it’d be fucking awesome.

I tip my [nonexistent] hat to diamonds, but I will never buy one. It’s cheaper to remain single and not have kids and die alone anyway. Thanks a lot for ruining my life, Startup Edition.


PS: Ahh, yes, the whole point of this post. Alex Godin, who is fucking awesome and you should totally check out read this and suggested that I add an actionable takeaway for a startup. I suppose I did gloss over that, didn’t I?

I think there are a few takeaways to be learnt from this, for both startups and anyone who lives in a civilized society. We can take very real heed that it is indeed possible to entirely engineer a new desire, demand, thought, and belief so well that it seems an integral part of our culture and society. For people at large, I hope this makes us much more aware of why we believe the things we believe. I hope it makes us decide to critically examine what we believe, and decide for ourselves whether or not it is right we hold that belief or if we should discard it, and it was wrongly given to us (as seen here, in the case with diamonds).

For startups…while this seems like a grand undertaking and impossible to do with the bootstrapped resources of a tiny fledging company, it’s important to realize that times have changed, and it’s actually easier than ever to manipulate the media.

My great hope is that everyone uses this powerful knowledge for good, and doesn’t just con the whole world into buying arbitrarily valued diamonds, but I suppose take it for what it is.

However, some part of me is deeply unsettled that De Beers was so grossly, enormously successful in this media manipulation undertaking, and I’m quite upset that it’s the case, though I suppose it’s likely the case for pretty much every ‘fashion’ and ‘trend’, so perhaps it’s not that bad after all, and is the only way we come to value anything. I’ve always had a problem with wearing suits and ties, for instance. Why the hell do we do it? Why do we find this to be the proper attire in the business world, as opposed to a monk’s robes or whatever the hell is most comfortable and functional for whatever situation? I have a big problem with arbitrary and ‘customary, traditional’ preferences superceding pure, objective functionality. But anyway.

So yes, while it may not be ‘right’ that it is this way, it is very possible that just as was the case with diamonds and De Beers, a startup can be fully capable of utilizing media manipulation to great effect and success. You just have to make people believe they’re hearing it from someone else - someone that they trust and look up to. Just…try to do it with something that actually has real value, please :).

 
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