by Don Thompson
AN UBER FUTURE
CHAPTER SEVENTEEN
ART IN AN UBER WORLD
“Online art sellers are like the knight in a chess game; they move forward one square, then two to one side or the other.”
—Source unknown
BEYOND ATTEMPTS TO REGULATE THE ART MARKET, THERE IS ONE OTHER dramatic disruption that cannot be ignored. That is the growth of sales on the internet, with its potential to replace many of the market’s intermediaries and to democratize the world. Art markets are adapting to their own Uber world—with Uber used in the sense of the cellphone app transportation service that is replacing traditional taxis. Markets are also adapting to über dealers and collectors, but that is a different subject.
Los Angeles art speculator Stefan Simchowitz cites the origins of Lutheranism as an analogy for art in an Uber world. Martin Luther said that it wasn’t necessary to enter a cathedral and tithe to the priest, the bishop or the cardinal in order to talk with God. Rather, you could sit in a beautiful field and commune through prayer. Simchowitz says that you no longer need to visit a pretentious dealer and tithe through lower-value purchases in order to get the art or the art information you seek. You can bypass the dealer and take your laptop to a beautiful field to search online for what is available, what has been purchased and for what prices. You can see a thousand times as many works on Instagram as any dealer could assemble.
The Hiscox Online Art Trade Report estimated total 2015 online sales at $3.3 billion (3 to 4 percent of the world contemporary art market by value), up from $2.6 billion in 2014 and $1.6 billion in 2013. Those figures are certainly underestimates; they don’t include the Chinese market. Tracking the impact of the Uber revolution on the art market requires following a rapidly growing but moving target. Consider what happened with the appearance of the transportation Uber. In 2010, no one imagined being able to use an app on a cellphone (or watch) to arrange a ride with an unlicensed stranger. In 2015, forty-five million Americans did so. That figure is expected to double by 2017. Who thought we would ever be able to use an online site to find a potential life partner, or a vacation residence (through Airbnb), or a dog walker? How many (me included) argued that serious collectors would never trust online sellers enough to purchase expensive art in cyberspace?
Taxi drivers resisted the incursion of Uber; many launched traffic-stopping demonstrations in their city centres before accepting the inevitable. Art dealers and the previous Sotheby’s management team may have seriously disliked the concept of selling art online, but changed their view as the opportunities and lower transaction cost realities could no longer be ignored.
Uber and other non–bricks and mortar competitors strive for what business strategists call disruptive innovation, a concept articulated in 1995 by Harvard Business School Professor Clay Christensen. His idea was that established companies often don’t notice when innovative newcomers begin to rewrite the competitive rules for a business. New entrants start with new technologies and business models, and offer a less expensive alternative to mainstream offerings. Established firms lose some low-end customers, or some curious to try a new thing, but they ignore the new competition because the lost customers were just not very important.
Over time newcomer technology gets better, and incumbents bleed more of their customer base. Established firms face a dilemma: to invest more heavily in their traditional business model, or invest in technology to catch up to the disrupters.
Translate the disruptive innovation concept to the art market. If online selling is less expensive or more efficient than selling through dealers and auction houses, the online model will first get adopted at the low end of a market. This happened with art sales on eBay, Saatchi Art and dozens of other sites. Initially this worked best with prints, low-priced multiples and entry-level art, much of which migrated to online sites. Users became more familiar and comfortable with the concept of buying art online. Sales moved upmarket to harm established competitors. As sales moved up, online competition nibbled enough revenue from some existing competitors to push them toward insolvency.
The question has always been: What would happen beyond entry-level art? Would collectors purchase even medium-priced art online—say, above $10,000? If a collector is buying from a trusted source and is comfortable with a JPEG image, is that enough? Art adviser Amy Cappellazzo points out that people have been buying from auction catalogue images for years without seeing the artwork. Between a quarter and a half of the best works at Art Basel or Basel Miami are sold via JPEGS prior to the vip opening of the fair. In each case, collectors trust the auction house or dealer, and are comfortable with an image and a description. In the case of the art fair, they fear losing out if they don’t move quickly.
Cappellazzo notes the shifting comfort level that took place with other online buying. There was a period where buyers were apprehensive about purchasing a $30 book from Amazon or a $15 collectible from eBay, because that required sending credit-card information into the void. Year by year they became more comfortable with online purchasing at higher price points; eBay has auctioned at least fifteen items at prices above $1 million.
The implementation part of an art-selling start-up is more difficult. Art never looks quite the same in front of you as it did on the computer screen; buying online is wishful guesstimating if you want to live with the artwork. Two recent online start-ups illustrate this and other implementation glitches.
Tim Goodman’s online art auction house Fine Art Bourse went live at the end of June 2015. FAB was founded as an online platform intended to disrupt the traditional fine-art auction industry. Goodman said FAB would be a game-changer, a direct challenge to the duopoly of Sotheby’s and Christie’s in auctioneering. “It will take others at least a year [to copy] … it’s taken me three years … It’s a complex thing to do both legally and technologically.”82 FAB retained twenty-one “consulting specialists” around the world; Goodman said he planned to increase the number to sixty. His goal was to achieve $280 million in sales by 2019. He projected this as 3 percent of the world art market. FAB planned to charge much lower fees than the established auction houses—a buyer’s commission of 5 percent plus a $330 “fixed lot buying fee.” A five-year, money-back guarantee to buyers would cover authenticity or title.
FAB was based in London, with plans to open offices in New York, Hong Kong and Beijing. Auctions would be online and run from Hong Kong, where there were no sales taxes, resale royalties or copyright fees. That left the unanswered question: If the art consignor (and the artwork) were in one country, the bidder in another and the auctioneer in Hong Kong, what legal system and forum would be used for resolution of disputes?
Goodman has a distinguished art-world pedigree. He was executive chairman of Bonhams & Goodman Australia, then executive director of Sotheby’s Australia. In 2009 he purchased Sotheby’s Australian business, and by 2011 owned four Australian auction houses which together accounted for almost half the Australian market. He sold the four to work on the FAB “game-changer.”
In August 2015, a month before FAB’S first scheduled sale of fifty paintings, several of FAB’S financial backers withdrew. No others stepped forward, and the company went into receivership. The consulting specialists and staff in London and Hong Kong were terminated. FAB had burned through investor capital exceeding €4 million ($5.5 million).
What happened? Financial backers cited both over-budget costs and concern about the inability to physically inspect a work before bidding. You can sell $5,000 art on the basis of a JPEG, and you might sell $25,000 art that way. They doubted whether Goodman could sell a $250,000 or $2-million work if the image and artist and seller were not already well known—a Warhol flowers silkscreen consigned by a known collector with an unquestioned provenance, for example.
The same week that Goodman announced FAB, Simon de Pury announced an online venture called De Pury, backed by German venture capitalist Klaus Hommels. De Pury left Phillips de Pury in 2013; the company name r
everted to Phillips. His new venture would combine online auctions with a physical location. In October 2015, de Pury held its first auction—350 works of contemporary art and design from the Geneva-based Lambert Art Collection, consigned by his friend, the late Baroness Marion Lambert. The catalogue was available only online. The auction was to be at Ely House in London, the eighteenth-century showroom of British dealer Mallett. Bidders could come to the showroom or bid online.
Several weeks before the sale, de Pury decided to hold the pre-auction exhibition at Ely House, and the sale at Christie’s King Street salesroom. This apparently allowed him to secure a few guarantees or irrevocable bids for the work. The online sale was shown simultaneously on the websites of both Christie’s and De Pury.
De Pury’s original idea was to charge a 15-percent buyer’s premium up to $2 million and 12 percent thereafter, with vendors paying 9 percent. For this first auction, de Pury charged the same 25- to 12-percent sliding scale as Christie’s and Sotheby’s. But online auctions held in a showroom were pretty much what Christie’s and Sotheby’s were already doing. If format and commission models were the same, and with fewer (or no) guarantees, how would the de Pury model with an online catalogue, a physical exhibition and a live auctioneer, draw high-end works from Christie’s and Sotheby’s—or from Phillips?
The most successful online auction model is peer-to-peer through an intermediary—think of eBay or Saatchi Art or Amazon. These charge some combination of a listing fee plus a commission, and allow buyers and sellers to negotiate directly. The idea of peer-to-peer is to make images and full information available in one place, to eliminate the traditional middleman and to minimize fees. The most successful example is Saatchi Art (www.saatchiart.com). Founded by collector and dealer Charles Saatchi as Saatchi Online, the site is now owned by Demand Media, Inc. The site claims to offer the world’s largest selection of original art: half a million original paintings, drawings, sculptures and photographs by fifty thousand artists from one hundred countries.
Most works offered on peer-to-peer sites are under $1,000. Besides the desire to see the work, a constraining factor on price is that at the highest levels, contemporary art auctions and über dealers produce astonishing prices through a mix of art, brand, event, celebrity, theatre and backstory. For Saatchi and other online sellers, the value is just the artwork.
Saatchi offers the ability to browse by style, subject, medium, artist or country—which makes the site popular with interior designers. Saatchi also offers curated collections. In October 2015 the site showed a selection of sixteen photographs selected by actor Jamie Lee Curtis.
Saatchi aids a vast number of artists in making at least a modest living. Every artist I know who shows on the site reports some regular sales. An artist who would like to gross $70,000 a year can do so with a few more than fifty sales at $2,000 each (taking commission and other costs into consideration). This is one a week, with the work exposed to a worldwide audience. If the artist had a mainstream dealer, she would need thirty-five to forty sales at $4,000, made to a local collector base. Most dealers could not manage that.
Consider the modest but probably typical case history of HyunRyoung Kim, an artist of Korean heritage who lives in suburban Toronto. In 2010 she began selling on Saatchi Online. At the time of writing she had sold fourteen works on the site at prices between $1,300 and $5,400. An example is her Untitled 15 (2013), a 4 × 3-foot (122 × 91 cm) acrylic on canvas (see photo insert), which in November 2016 had 4,549 views and 129 “favourites” on the site. Each year she takes part in a number of juried shows around Toronto, and some one-time gallery exhibitions. Her Saatchi income is a good supplement to these other channels.
Saatchi Art illustrates the difficulty in making money in the online art market. The site charges a high 30 percent of the selling price as a commission. When the company was sold to Demand Media in August 2014, it was revealed that Saatchi Online had lost $5.7 million in 2013 and $4.2 million in the first six months of 2014.
Amazon’s online art sales model is similar to that of Saatchi, except that most of the works come from dealers. The site was introduced as an experiment to see if clients would buy paintings and prints online the way they bought books or small kitchen appliances. Amazon solicited galleries in the United States and six other countries with the proposition, “List work on our site and for a modest commission, 20 percent for works up to $100 declining to 5 percent for works over $5,000, we will give you exposure to 240 million customers worldwide.” A few artists have registered a “gallery” on Amazon and sold their own work through the listing.
As of mid-2015, Amazon showed work from 210 galleries: fifty-five thousand paintings and prints from five thousand artists. Amazon does not guarantee authenticity; it does allow customers to return merchandise for thirty days for any reason (although that may involve reshipping a painting to China). Typical expensive works offered were the Warhol screen print Shoes (1980) and the Banksy screen print Girl with Balloon (2004), both at $135,000, both including a “Make an Offer” option. About 40 percent of the works offered were under $1,000. The first hundred galleries I checked were ones I had not previously heard of.
Artists who market their own work online are unlikely to have representation by mainstream dealers, but this norm may change. There is a cute exception to this; I know several artists who are represented by a mainstream gallery and also sell their work under an “artistic stage name” on Saatchi Art or eBay. (Kim is not one of them.)
Artists who market their own work are also unlikely to see that work appear at an art fair. It would seem reasonable that artists creating good work but without gallery representation—or artists with an established reputation who no longer wanted representation—could show their work at a half-dozen fairs a year and earn a good living. It does not happen. Any fair that suggested admitting artists showing their own work would face opposition from indignant dealers threatening retribution.
Online sales hold one disadvantage: artists no longer receive feedback and advice from dealers. Artists get direct feedback from online customers, and will learn from buyers what versions of art are well received and which are not. The artists can have their work rated online, by purchasers and non-purchasers alike.
Saatchi Art and similar sites are highly disruptive for mainstream dealers. Some of their online sales substitute for gallery sales. Some observers argue that the disruption is self-limiting. But even if the realistic price ceiling for online sales is $25,000, that still covers half or more of the sales made by mainstream galleries. At $100,000 it overlaps 95 percent of those sales. As dealers lose revenue they risk losing their more prominent gallery artists to dealers higher on the pecking order. Each year, more mainstream dealers fall below the tipping point of survival. Each failed dealer leaves twenty to thirty artists without gallery representation. Many of these resort to selling their work online.
There are hundreds of other sites that offer peer-to-peer art sales. Artspace, 1stDibs and Auctionata are examples. Some sites continue, others disappear quickly and quietly. The attrition comes because to open a peer-to-peer site you need art to list, a domain name, good photography and click-to-buy software. To actually sell from the site you need to find a way to promote it, which usually means using Google, Twitter or YouTube to inform potential collectors.
Many dealers list art on their own websites. There is always a suspicion that those are works that have gone unsold in the gallery, that dealers would never post their best pieces. In particular they would certainly never offer work by an artist with a gallery waiting list.
There are three online selling models that seem to offer the greatest potential for disrupting the high end of the market: ArtRank, ArtViac and Artsy.
ArtRank (www.artrank.com), first mentioned in Chapter 1, offers “Buy,” “Sell now” or “Liquidate” judgments on contemporary artists, using an algorithm-based forecast of near-term prices, analogous to the way that investment bankers rate stocks. Carlos R
ivera, co-founder of ArtRank, says the algorithm uses trend data on “presence,” “auction results,” “market saturation,” “market support,” “representation” and “social mapping.” The site also has input from twenty-five art-world professionals—collectors, advisers and dealers—who provide data on things like studio output.
The most important rating factors seem to be auction results, the identity of the dealer, appearances at art fairs or auction houses, and likes and hashtags on Instagram and Twitter. If an artist’s selling prices drop at two successive auctions, or the artist is dropped by a dealer, bad rankings result. If prices go back up or the artist is taken on by a higher-ranked dealer, the artist is back in favour.
At the time I was writing this, artists Walead Beshty and Mark Flood were rated “Sell now” because their market had lost momentum. Artists Jacob Kassay, Sterling Ruby and Parker Ito were rated “Liquidate,” which means sell as fast as possible for whatever you can get. If ArtRank were widely followed, this would mean that the market value of a work by Kassay, Ruby or Ito would drop almost immediately to a level where their work could be acquired with no speculative price component.
“If you sold Oscar Murillo at the beginning of 2015 when he was rated liquidate, you might have got $300,000 to $400,000,” Rivera said, explaining changing rankings. “By mid-2015, when he was rated as early blue-chip, that price had dropped by 60 percent … At $200,000 he is an artist who is worthy of investment.”
Rivera says he is not encouraging speculation, but rather offering a twenty-first-century art advisory service. “People don’t know about emerging-market artists without a great adviser, and you don’t get a great adviser unless you’ve got millions of dollars to spend. I’m not asking for $50,000 upfront like a top art adviser.”83