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
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)