The Rise and fall of Art Startups

 Paris  |  14 November 2017  |  AMA  |  Tweet  |  LinkedIn

Despite its reputation for being at times archaic, the art world has been very creative when it comes to integrating technology. We take a look at the business models behind some of the most salient online startups of the art world.

In New York, 1989, Pierre Sernet and Hans Neuendorf founded a small company allowing art dealers to view prices recorded at auctions through a complex proprietary system. Seven years later, on the other side of the Atlantic, Thierry Ehrmann founded the Server Group, a collator of auction results promoting information transparency through technology. Today, Ehrmann is CEO of Artprice, the world leader of art market information. Long before the Internet, in the realm of client-server technology, there were players all accross the world considering the challenges facing the art market and how to adapt the latest advences in order to grow the business. After all, the art world has been online since long before Google, Facebook or Uber existed.

Online commerce

The Holy Grail of the online art industry is of course to sell, sell, sell. The number of attempted online art ventures is staggering as in the past few years alone, many thousands of efforts have taken place, in this tiny-mini market. Businesses operating in this area pitch their future success on the subtleties between the different platforms and approaches and the various sub-niches. At present, the biggest online-only venture in the market is 1stdibs, founded in 2001 at the Saint-Ouen flea market. Dedicated primarily to antiques and collectibles, it has since achieved significant market share for interior design and decoration in the United States. Whilst it was conceived as an online listing for returns, the site now deals with transactions directly. 1stdibs closest contemporary rival, despite having not yet become profitable, is Artsy. Created in 2009 by Carter Cleveland, Artsy has attracted both institutional and industry investors such as Larry Gagosian. Artsy began focusing on the idea of discovering new artists, though its business development has been inconsistent, with the company attempting to offer services from direct sales to auctions to editions, thus losing some lisibility along the way. Other players have attempted to operate in this area in recent years with very different business models. VIP Art Fair in 2010 was at the time the first art fair to be held entirely online: there was a fixed number of exhibitors, access was limited and duration fixed, galleries paid according to the number of works presented. Although the platform generated a huge amount of traffic, major technical difficulties rendered the fair inaccessible for most of the duration of the fair. In short, it never recovered from this initial setback. Another noteworthy example is Artspace, a digital marketplace for art and design, which after raising more that $12 million in startup capital was bought by Phaidon Press (Leon Black) in 2014 for a fraction of the sum. Hopefully the popular French platform Artsper, which operates on a very similar model, won’t meet the same end; current investment stands at 4 million euros. One of the more examples, Auctionata has managed to eradicate two online-only auction houses in just 9 months, announcing its merger with Paddle8 on 12 May 2016.

By early 2017, the German online auction house and e-commerce company had gone into insolvency. Between them, it’s close to $150 million and more than 10 years of cumulative work that went up in smoke. Today, no single company seems to be able to dominate the online auction sector in the short or medium term.

Complicated business models

Why, in 2017, no actor has yet managed to make a real go of things in this small market? The number of millions swallowed up by all these attempts [see box] is particularly telling. The money invested in these online art platforms might exceeds the volume of their business.

There are myriad reasons that might be considered off-putting to anyone considering trying to break into this area. Without going into detail on the implementation errors specific to each project, the most difficult obstacles for any business considering entering the online art trade are inheritant structural specifics that exist in the art market as a whole. The unique nature of a work of art as a singular object is one of the biggest issues. The relevance of the internet lies in scalability, the ability of a business to grow elegantly. The art market however is not scalable at all, with its primary expense being the acquisition of works. Given that each piece is presumably one of a kind, the entire cost for each item is incurred as it is added to the inventory. It is also important to consider whether collectors are actually ready to buy artwork in this way. The 2017 Hiscox report (produced by ArtTactic) offers a less enthusiastic forecast than in previous years.

The barriers to making a purchase are still up and don’t seem to be going anywhere, for a multitude of reasons. There the fear of being disappointed by the product when actually delivered, the lack of confidence in the platforms, the absence of the ability to see a piece in the flesh before purchase; the list goes on. In addition to these dissuading factors, is the market actually big enough? With all the pure-players of reasonable size (Artsy, Artnet, Artspace, etc) wanting to offer the full range of services (direct sales, recommendations, cold auctions, live auctions). The result is that they put themselves in direct competition with one another, collapsing the market rather than expanding it. The search for new online collectors seems to already be problematic.

The investment model favoured by some European groups – but in particular in the US – does not help. Startups are meted out cash only after achieving goals set by the investor. These goals may not be central to the objective of startup – or may not be relevant at a specific moment – and may not even guarantee the next installment of capital – as we know, investors prefer to keep their cash readily available rather than having it sitting in somebody else’s pocket. The situation is entirely unsustainable.

A waiting game for traditional institutions

It may even be that the long-standing institutions to win the online battle; if we’re to believe the latest Hiscox report, it’s already in the bag. Christie’s, Sotheby’s and Heritage Auction are producing 720 million dollars in online sales between the three of them, constituting a 20% market share. The art market is indeed very driven by supply, and today it is industry stalwarts who have access to the objects. Adding an online sales channel to a traditional auction house costs virtually nothing, whereas the cost of building a sourcing network is out-of-reach for most pure-players. Offline entities are already profitable and offering web access to their services is fast, financially accessible and does not fundamentally change either the business or the organization. Conversely, an online only business needs to simultaneously build its platform, develop a brand, recruit customers and build a sufficient stock – not to mention often having less industry experience and expertise. Bearing this in mind, the merger of Drouot, a company with a strong legacy, and Expertissim, a digital company, which celebrates ten years of operation this year, is definitely one to watch.

The future of the art startup

While war is still being fought between online art trade players, whole new area of attemps are being tried out by pationate entrepreneurs. The blockchain – which is merely a high-security (for now) database – opens up many opportunities for traceability, provenance guarantee and indirectly the authenticity of artwork. This technology which was originally created to track virtual currency transactions, could also track the transactions of art objects. Verisart and Everledger are amongst the companies working on this. Furthermore, image recognition software will soon allow radically simplified access to information about works of art; pop out your smartphone and you’re ready to go; data is readily available without the need to even enter any information. Smartify is one notable example of an app that allows you to scan and identify artwork.

On a more pragmatic and concrete level, the complexity of the logistics of art is being addressed by startups such as Clarion List or ArtRunners. The latter, by listing service companies active in the field of art, acts as specialised directory, a recommendation tool and a a prize guide. Even a product as specific as an artist’s catalogue raisonnés can be improved by technology. Artifex Press, founded in 2012, has already produced those of Chuck Close, Jim Dine, Tim Hawkinson, Sol LeWitt, Agnes Martin, Lucas Samaras and James Siena. Searching for artwork using their platform now takes a matter of seconds, rather than hours. These are but a few examples of the variety of subjects affected by technology.

This is all without even mentionning the creativity of the artists themselves who continue to push the use of technology in their own search for aesthetic value, meaning or impact: VR or AR, digital art, algorithms, cellular biology, 3D-printing, etc. Nothing is off-limits. And, at a time where video-art still struggles to find a viable market, the most established players are already trying to accompany these new mediums. That’s how, in its Hong Kong edition this year, Art Basel, in partnership with Google, presented a platform dedicated to virtual reality.

Museums are also part of the picture. Having experimented with using apps to improve upon the traditional audio guide experience, but struggling to monetise this service, they are now working on virtual access to their collections. Since the creation of the Google Art Project in 2011, the Mountain View company has been providing institutions from all countries with free access to its technologies and – almost – for free: specific databases, storytelling tools, Museum View, Art Camera. How do the numbers look? More than 1,000 of the most prestigious museums and a collection of millions of objects are involved in the project. The dsl Collection by Sylvain and Dominique Levy has been touring for the past six months, presenting the couple’s virtual museum. A simple headpiece gives instant virtual access to 350+ pieces of their collection, allowing the viewer to meander through an open-air museum. Their ambition is to democratise the consumption of art as much as possible.

It is clear that the market is no longer afraid to test a multitude of ideas, affecting all the industry’s intrinsic problems such as lack of transparency, traceability, authenticity, access to information, sales and valuation. Statistically, there will inevitably be many tales of woes and economic failure; but it shows above all that solutions are possible and the even seemingly insurmountable difficulties have solutions. The fact that there is no omnipotent “Google” style player in the art industry encourages those setting their sights on the jackpot to get involved. It will be interesting to see how many entrepreneurs would be willing to enter the art world once a monopoly is established… so the art industry shouldn’t let its guard down. Maybe right now, a teenager is, in his or her garage, actively building the startup of the art world!

 

 

Memo

The Hiscox report, which focuses on the behavior of online collectors, can be downloaded free of charge from the insurer’s website: www.hiscox.co.uk.

 

 

Zoom

Top 10 biggest fundraisings

  1. 10. Artspace: $8.5m (20 February 2013)
  2. 9. Auctionata: $17m (2 April 2013)
  3. 8. Artsy: $18.5m          (3 April 2014)
  4. 7. Artsy: $25m (26 March 2015)
  5. 6. Auctionata: $30m (15 April 2014)
  6. 5. Paddle8: $34m (28 October 2015)
  7. 4. 1stdibs: $42m (3 December 2012)
  8. 3. Auctionata: €42m (30 March 2015)
  9. 2. Artsy: $50m (18 July 2017)
  10. 1. 1stdibs: $60m (3 November 2011)

The total known amount raised by the only five companies present in this top 10 cumulate to more than 375 million dollars.

 

 

Verbatim

Gauthier de Vanssay

« I don’t think there has been a great deal of innovation since the introduction of the online art market. Its value remains limited, due to a lack of confidence. Serious expert appraisals are too expensive and not scalable, deliveries of delicate works of art remains high-risk and online presentations don’t live up to the expectations of customers. I would consider the future to lie in strengthening the relationship between the traditional market and web platforms. If they work together in close collaboration, the process for selling artwork and goods should be smooth as long as they come into stock before the actual transfer of the object. The art market is underdeveloped due to its inherent lack of flexibility and the unique nature of artwork increases costs making the activity of online only businesses very difficult. This is also why traditional auction houses are still on top today. It is important to continue to invest heavily in the online art market because we still have a long way to go. One positive aspect: the web platforms that have sprung up in recent years (at a cost of millions made available to investment funds) have at least opened the eyes of traditional players in the market… »

Gauthier de Vanssay is the founder of Expertissim, acquired by Drouot Digital in 2017. He is also the founder and director of Finarta, a closed network of art dealers.

 

 

Verbatim

David Rosenblatt

« We are still in the early days of the art market moving online, but we are already seeing it offers many advantages over the offline experience. Imagine trying to visit multiple galleries in different geographical areas and choose from over 100k works – it’s simply impossible.  With online, a buyer located anywhere in the world at any time of day, can do this in seconds. And buyers are quickly becoming comfortable purchasing online. At 1stdibs, the average art order value is over $2,000. We see five-figure sales daily and the pace of six figure sales is increasing. And the online buying experience is only going to get better as technology improves the quality of the images buyers view on your computer/phone and bring them to life with augmented and virtual reality. For example, buyers with the 1stdibs app can use its view in room feature and instead of looking at a work on a gallery wall they can instantly see how it looks in their home. It’s just the beginning… »

David Rosenblatt, CEO, 1stdibds.

 

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