New kids on the block: rise of the on­line art auc­tion

De­spite high-pro­file fail­ures, on­line auc­tion­eers are bid­ding for the at­ten­tion of col­lec­tors, writes Josh Spero

Financial Times USA - - ARTS - Ad­di­tional re­search by Mary Childs

When on­line art auc­tion sites Pad­dle8 and Auc­tion­ata an­nounced their merger in May 2016 t hey ex­pected to be­come “one of the top 10 auc­tion houses in the world by sales”, ac­cord­ing to Pad­dle8’s Alexan­der Gilkes. By the end of Fe­bru­ary 2017, the merger had fallen apart, Pad­dle8 had fired al­most a third of its staff and Auc­tion­ata had shut down, in­sol­vent, cost­ing over 130 jobs. As an auc­tion­eer might say, go­ing . . . go­ing . . . gone.

Per­versely, there does not seem to have been a bet­ter time to be in the on­line art sec­tor. The new His­cox On­line Art Trade Re­port, launched at the end of April, made happy read­ing for Pad­dle8 and its ilk. On­line art sales rose 15 per cent to $3.75bn, de­spite the broader art mar­ket fall­ing 11 per cent to $56.6bn. It pre­dicts that, with an un­bro­ken tra­jec­tory, the mar­ket could be $9.14bn in 2021. Sim­i­larly, in Fe­bru­ary 2017 Christie’s re­ported an 84 per cent rise in on­line sales to £49.8m as its over­all sales fell 16 per cent to £4bn. The op­por­tu­ni­ties for dig­i­tal houses are clear, but the path is tough and twist­ing.

Back in Novem­ber 2016, it had seemed so promis­ing. Pad­dle8 filled a smart cen­tral Lon­don town­house with art­works for a se­ries of auc­tions; when I vis­ited, a Fran­cis Ba­con trip­tych print hung across from a Mar­cel Dzama draw­ing and a Chi­nese ter­ra­cotta camel. The floor above was be­ing set-dressed with a ros­trum for an auc­tion­eer to pre­side at a live sale broad­cast.

Given that Pad­dle8 had made a virtue of its light-touch model — it did not take pos­ses­sion of the work, val­i­da­tion was done re­motely, it did not pro­duce hefty cat­a­logues — this seemed odd. But Pa­trick van der Vorst, then UK chief ex­ec­u­tive, said en­try-level cus­tomers “still want to have that tan­gi­ble feel” be­cause they are un­fa­mil­iar with the art mar­ket. Putting things in a build­ing meant clients could “imag­ine what these things could look like in their own house”.

But it turned out it was Pad­dle8 that needed to get its house in or­der. In Jan­uary, Auc­tion­ata filed for a pre­lim­i­nary in­sol­vency pro­ceed­ing; at the same time, Pad­dle8 an­nounced that it would aban­don the merger and re­gain its in­de­pen­dence with in­vest­ment from “a strate­gic, ma­jor­ity spon­sor”. In Fe­bru­ary, Pad­dle8 made mass lay-offs and co-founder Aditya Julka left in a “very am­i­ca­ble” man­ner, ac­cord­ing to a spokesper­son. Soon af­ter­wards, when no money could be found to keep it go­ing, Auc­tion­ata col­lapsed.

The merger was al­ways doomed to fail, ac­cord­ing to a se­nior fig­ure within Auc­tion­ata speak­ing in Jan­uary: nei­ther com­pany had ever made a profit, and “the com­pa­nies have ef­fec­tively been burn­ing just too much cash to­gether”.

The de­ba­cle left Pad­dle8’s ri­val Artsy preen­ing. Artsy runs a dual model, with fixed-price list­ings from tier-one gal­leries, such as White Cube and Hauser & Wirth, and themed auc­tions, like street art and Valen­tine’s Day mul­ti­ples. It hosted 41 auc­tions in 2016 and is aim­ing for over 150 this year; more than 50 per cent of win­ning bids come through mo­biles. It now also part­ners with Sotheby’s, Christie’s and Phillips on live auc­tions.

Wendi Deng, ex-wife of bil­lion­aire me­dia ty­coon Ru­pert Mur­doch, giv­ing her first pub­lic com­ments on her in­vest­ment in Artsy, says that she knew the young and tech-savvy would love the site: “Art is in­tim­i­dat­ing for most peo­ple — we thought it was a good way to con­nect the world.” She and her friend Dasha Zhukova, the gal­lerist, brought “art-world re­la­tion­ships [with] top gal­leries, deal­ers, in­vestors, Gagosian, Pace Gallery”. By start­ing with the top gal­leries, the site gained in­stant cred­i­bil­ity, she says, nor was there a rush to make a profit; in­stead “we de­cided it was im­por­tant to build a business”.

Prof­its are elu­sive in the on­line art mar­ket. David Rosen­blatt is yet an­other bil­lion­aire who has taken an in­ter­est in the field (he sold an ad­ver­tis­ing tech­nol­ogy com­pany to Google) by be­com­ing chief ex­ec­u­tive of 1stdibs, a fixed-price mar­ket­place. When asked whether 1stdibs, which has been around since 2001, has ever made a profit, he says, “We don’t dis­close that be­cause we’re a pri­vate com­pany” and talks about rein­vest­ing rev­enue but adds, drily, “You can in­fer the an­swer from that.”

The pres­ence of so many bil­lion­aires in the in­dus­try might be re­veal­ing about the “pa­tient cap­i­tal” needed to sup­port it and the glam­our in­her­ent in an art­tech com­bi­na­tion.

Like oth­ers in the in­dus­try, Rosen­blatt is dis­mis­sive about the auc­tion mar­ket’s hulk­ing in­cum­bents. How are the big play­ers adapt­ing to ecom­merce? “To date we’ve seen al­most no adap­ta­tion . . . So far it ap­pears it has not been a pri­or­ity for them.”

Christie’s, hav­ing spent at least $20m (a 2014 fig­ure) on its site, strongly con­tests this. In a meet­ing with its top web­fo­cused ex­ec­u­tives, they talked about how the re­al­ity of dig­i­tal auc­tions has over­turned their pre­con­cep­tions of them. It has re­placed the stan­dard “guil­lo­tine” model for an on­line auc­tion, where lots time out, with “a bid­ding ex­ten­sion mech­a­nism”, says Keith Gill, head of day sales for Im­pres­sion­ist and Mod­ern art: a last-minute bid on a lot post­pones the (vir­tual) ham­mer, just like in the sale­room. Some lots have ex­tended by 15 or 20 min­utes, says An­gelina Chen, head of ecom­merce for jew­ellery.

Sotheby’s, Christie’s prime ri­val, has had a bumpier course. It has en­gaged eBay twice as an on­line sales plat­form, first in 2002 for a year and then again in 2015, but has also worked with Artsy and In­valu­able (whose tech­nol­ogy it uses un­der its own brand). While Christie’s sold al­most $50m in pure on­line auc­tions last year, Sotheby’s made $6m in 16 sales start­ing in July.

Oth­ers have en­coun­tered the para­dox in the on­line art sec­tor which Pad­dle8 met. While such com­pa­nies were set up to op­er­ate with­out the phys­i­cal over­heads that cost Sotheby’s and Christie’s so much (suites of sale­rooms, vast stock­rooms for lots), bid­ders like them.

Mi­nal Vazi­rani co-founded Saf­fronart, an In­dian on­line auc­tion site, in 2000 for “hum­ble rea­sons”: the frag­mented and opaque art mar­ket in In­dia made it hard to col­lect good mod­ern and con­tem­po­rary art at rea­son­able prices. The site’s on­line- only auc­tions grew from $126,000 in De­cem­ber 2000 to $17m in 2006, be­fore slump­ing along­side the global econ­omy.

It was the slump which per­suaded Saf­fronart to of­fer live, phys­i­cal auc­tions. New buy­ers “liked the ex­cite­ment of the phys­i­cal room”, while Saf­fronart’s “hy­brid bid­ding sys­tem”, which al­lowed par­tic­i­pa­tion on­line, on tele­phones, on mo­biles and in per­son, mul­ti­plied po­ten­tial au­di­ences. In 2016, Saf­fronart sold about $30m, she says. Vazi­rani has dis­cov­ered that the dig­i­tal is be­com­ing phys­i­cal.

While sev­eral in­ter­vie­wees sug­gested that there was no prob­lem sell­ing lots up to $100,000 on­line, lower-price lots are still the strong­est draw. The His­cox re­port says that 52 per cent of fine art lots on­line were sold for be­tween £501 and £5,000 and pre­dicts that the lower end will be re­silient. In Fe­bru­ary 2017 Will Ram­say, who founded the Af­ford­able Art Fair in 1999, launched an ecom­merce site to reach these clients, “be­cause mil­len­ni­als are much more in­clined to buy art on­line”. Early or­ders have been around the £600 mark, which is only slightly lower than the av­er­age price of an item at one of his fairs.

It is a trend Vazi­rani has picked up on too. In 2013, she launched Sto­ryLTD (pro­nounced “lim­ited”) for “col­lectibles but at lower price points” — edi­tions and the like. “That’s some of where I ex­pect to see scale com­ing through,” she says. Whereas Saf­fronart has an av­er­age lot price of $30,000, on Sto­ryLTD it is $2,000, and Vazi­rani says some Sto­ryLTD col­lec­tors have mi­grated up to Saf­fronart. Sim­i­larly, Christie’s boasts that 33 per cent of new buy­ers in 2016 came through its on­line plat­form, and half of those went on to bid in “tra­di­tional” auc­tions: the web­site func­tions as an im­mense client ac­qui­si­tion sys­tem, as one ex­ec­u­tive de­scribed it. As in any part of the start- up world, mis­fir­ings such as Pad­dle8 and Auc­tion­ata’s are in­evitable. But if the young com­pa­nies can make a profit and the in­cum­bents can evolve, there will be plenty of sites bid­ding for col­lec­tors’ at­ten­tion.

Clock­wise, from main pic­ture: Lancelot Ribeiro’s ‘Green Land­scape’ (sold through Saf­fronart); Alex Is­rael, ‘Self Por­trait’ (Artsy); F.N. Souza, ‘Un­ti­tled (Seated Nude)’ (Saf­fronart); Pi­casso’s ‘Vase au dé­cor pas­tel’ (Christie’s)

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