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Online sales are set to revolutionise the art market and, in a special Artworks investigation, Stephen Armstrong discovers who is spending the big money.

14 min read

The art world has long thought of angels as winged and divine, institutions as museums and capital as the city the museums sit in. In February 2014, however, when online art sales company Artspace drummed up $8.5 million in a second round of financing, led by the venture capital firm Canaan Partners, it became clear that the angled lexicon of the start-up world has taken over whole swathes of the art world’s language.

The online space has fundamentally changed the way we exchange ideas and talk about art. No longer is public discussion limited to the artist, the curator or the newspaper critic; there is now a vast array of voices engaged in the debate around art and the audience has an active part in this discussion.

Artspace aims at both novice and veteran collectors, and has sold works ranging from a few hundred dollars to $150,000, selling to collectors in 28 countries, according to co-founders Catherine Levene and Christopher Vroom. The company’s museum-related sales alone have generated more than $1.5 million.

Indeed, since 2010 collectors have encountered a host of new opportunities to acquire work online, including the web-only VIP Art fair, online portals to brick-and-mortar art fairs, and the evolution of online sales and auction platforms, such as Artsy, Artspace, Paddle8, Exhibition A, Artfinder, 1stdibs, The Spotlist and Artprice’s Standardised Market Place. At the start of 2013, The Wall Street Journal reported that Christie’s plans to offer at least 30 online-only art sales this year, up from just seven last year.

These new sites target different buyers, price segments and mediums – Exhibition A offer limited editions at accessible prices, while s[edition] specialises in digital art – the common denominator is that they act as the online platform or intermediary between the suppliers of art work (individual artists, galleries and museums) and potential buyers.

Although these platforms can and do provide both galleries and artists with a much larger potential target audience than they could hope to create themselves, it’s still early days.

“The online art market is in its infancy – only five out of 175 galleries at the Frieze Art Fair in 2013 offered an e-commerce option on their website,” says Robert Read, head of art and private clients for Hiscox, the insurance specialist who for 40 years has both insured and purchased art for clients. “People are still trying to create a trusted and relied platform for people to trade online, because ultimately if someone cracks the upmarket eBay, which offers guarantees as to the credibility of those buying and selling on it, then that will be transformational. You could see that knocking out a whole layer of the dealer infrastructure that exists at the moment.”

This could also threaten the edge of businesses that feed on, but operate outside, the art world, including advertising and marketing. Advertisers are competing for attention alongside the thousands of messages we receive every day, but have the added disadvantage that their work is rarely requested. Any communication needs to be powerful and compelling to overcome that resistance; cheap or free is one way to go, but for the premium market the motifs and messages used have to strike a cultural chord instantly.

“I think it’s hard to draw a definitive line between the art world and the commercial art world,” explains Richard Gorodecky, executive creative director at Intel and Feadship’s agency Amsterdam Worldwide. “I’ve always used galleries as a jump-start for a flat brain. I’m not talking about looking for a creative solution on the walls of a gallery, just the importance of feeding your brain with the best nutrition. So on many levels art is essential to what I do. ”

In the 90s, Gorodecky explains, ads for brands like Guinness and Levis would be inspired by visiting short film festivals or scouring hipster hang-outs. No longer. “The pace of change is incredibly quick now. The journey from underground to emerged can happen almost overnight. So the search for fresh is much more challenging.” Gorodecky may mourn the ubiquity of free art work for creative inspiration, but he has purchased online himself, most recently work by Yoshitomo Nara. He’s wary of online auctions, however, in case he overpays or buys a fake and would welcome a sort of internet sheriff or Robert Read’s suggested upmarket eBay platform.

There’s some very smart money looking for this magic-bullet solution. More than 300 online art ventures have been established across the world in recent years. Investors such as Jack Dorsey, a founder of Twitter, and Peter Thiel, a former PayPal executive, have invested in Artsy, which recently raised a further $5.6 million from the internet entrepreneur Sky Dayton, founder of wi-fi services company Boingo. LinkedIn co-founder Reid Hoffman is betting on Artfinder while Artspace recently brought in Russian collector Maria Baibakova as strategic director.

“You need to raise a lot of funds and have very deep pockets and sit it out for a while to get everyone to start using it,” Read explains. “I don’t think anyone’s fully cracked the basket of what you’ve got to offer on that platform to get it right, but once someone does they will make a fortune out of it because they’ll be taking a small snippet out of every trade.”

For Read, such an auction house would be a game changer in the way Napster, followed by iTunes, was for the music business or Amazon was for the book industry. They completely disrupted the existing business model, forcing a sometimes brutal restructure, a flood of pirated or free out-of-copyright works and shifting customer expectations. The major effect of online purchasing in these soft-art areas has been to wipe out swathes of retailers and encourage unpacking of traditional marketing and business cycles. It’s forced musicians and writers to re-evaluate performance, from concerts to live reading. It’s also created a strong direct connection between creatives and their audience.

In the art world, this has yet to happen, Read believes, although he warns he can see significant changes to the distribution process ahead. In the meantime the major change has been the widespread and largely free distribution of information on art works and artists. This thwarts the expertise of the secondary market dealers by allowing buyers to bid online at auction houses with as much knowledge at their fingertips as an experienced secondary dealer might have taken 20 years to acquire.

“Before the internet, you just didn’t know where something had been sold before, but now you can go on Art.Net, you can go on Art Price [Index], and you can find out exactly its history at auction,” he explains. “People have become much wiser buyers because they can see the history of what’s happened. That’s contributing to the real squeeze in the secondary market so that business is really heading to the auction houses or to a few major galleries and the bulk of secondary market dealers are really struggling. You can sit there on your computer in China and bid on an auction at Sotheby’s and Christie’s the other side of the world.”

Certainly online auctions have significantly increased in popularity among traditional auction houses. Sotheby’s launched its platform in 1999, initially in partnership with Amazon, and other traditional auction houses have also used the internet as a platform to reach the lower end of the market. Sotheby’s current online platform BidNow lets buyers follow the auction live and place bids online. The auction house also developed iPhone and iPad apps in 2010.

Christie’s introduced online bidding in 2006, and launched its iPhone and iPad apps in 2009 and 2010. In the first six months of 2012, internet bidding at regular live auctions increased by 15 per cent.

Artnet Auctions, Artprice and Paddle8 have all been targeting the lower to middle-price range of the art market, and at lower transaction costs than traditional auctions, further squeezing secondary dealers’ margins. It may be, however, that in the near future the relaunch of Saatchi Online in 2011 will be seen as art buying’s Napster or Amazon moment. The site has allowed artists to upload and sell up to 20 works since its inception in 2006 – attracting over 100,000 artists by the time it relaunched in 2011, operating out of Los Angeles and selling directly to art buyers. The website organises payment, as well as shipping of the work to the buyer, and offers a seven-day money-back guarantee.

“Most of the artists on the site don’t have gallery representation,” says Rebecca Wilson, director of the Saatchi Gallery in London and board member of Saatchi Online. “There aren’t enough galleries around. We’ve expanded the market, attracting people who had never bought art before. We’re planning on increasing initiatives where we work with international curators to highlight and promote artists on the site, ideally ensuring our artists never need a gallery.”

In 2012, Wilson put together a group of 100 curators from around the world, including the Museum of Modern Art (MoMA), Los Angeles County Museum of Art (LACMA), Palais de Tokyo, Kunsthalle Vienna, Hirshhorn Museum, Pace/MacGill Gallery and Manifesta8, but also reaching out to curators in Lagos, China, India and as many emerging art markets as possible. Each curator was asked to select ten artists on Saatchi Online at the time and, each day for 100 days, work selected by these curators was promoted online. Sales soared.

“The art world has been very closed and hard to understand,” says Wilson, who came to the Saatchi Gallery from the publishing world. “All we are concerned with is ensuring more and more artists can make a sustainable living. Unlike Artsy and Artfinder we don’t want to create an online mirror image of something that already exists, facilitating buyers in elite galleries, museum and institutions. We’re not here to help White Cube make more money. We want to connect the artist directly with the buyer.”

“Disruptive retail models can be useful when looking at fresh markets, but they’re not necessarily perfect templates,” says Gareth Mackown, mobile leader IBM UK & Ireland, who recently helped Faberge examine models for its online business. “Books and music have a low purchase price; single tracks and discounted online books allow buyers to take more risks and make more mistakes without worrying. With more expensive purchases, customers can be wary, although that comfort level can be moved with trust – trust in the retailer, trust in the gallery.

“The social side helps – Amazon’s customer reviews not only increase trust in the platform, they help shape the market. It’s interesting to see a number of new peer-to-peer platforms launch in the art world that may have a similar effect – ArtViatic is aimed at collectors, and Artbanc aimed at both collectors and the art dealer community. These are still within the art world, however. We’ve yet to see that reach middle-market buyers.”

But how significant is that middle-market online? For all the debate about online purchasing offering direct relationships and a new audience, it’s hard to get accurate numbers, which is why Hiscox recently conducted a survey of online art purchasing to understand the market’s international ebb and flow. With ArtTactic, the company surveyed a broad cross section of buyers, collectors and galleries to understand how the art world is changing. The numbers are surprising.

Some 71 per cent of art collectors surveyed have bought art sight unseen through a website, indeed buying art having only seen a digital image is the norm rather than the exception. This isn’t just prints for the casual enthusiast either; some 25 per cent of collectors have spent more than £50,000 on a single purchase and almost 50 per cent have bought unique works. Galleries reported that original artworks, as opposed to prints, accounted for 53 per cent of online sales. Curiously, it seems to be a male pursuit as 70 per cent of male collectors have bought art online against 55 per cent of women. Men also prefer online auctions; 56 per cent of male collectors have taken part against 26 per cent of women.

“In terms of the breadth of what could be traded online, it came down to people having knowledge of the artist,” says Hiscox’s Read. “If I know the artist, I’m much more prepared to buy the work blind or sight unseen. Also having a certain amount of trust in who you’re buying it from – once people trust in a dealer and their brand or an auction house and the brand, they feel more confident. It’s so much easier – you can now examine works at any gallery, at any auction house around the world, without actually having to get on the plane and visit it. I wouldn’t be surprised if Charles Saatchi doesn’t buy stuff online sight unseen in the same way that we have bought some items for our corporate art collection sight unseen.”

Right now, it seems, these purchases aren’t enough to live on for the art world. The global art market in 2012 was around $56 billion, according to numbers published by TEFAF in March, with online accounting for $870 million. One in two of the galleries surveyed put online at less than 10 per cent of their overall sales. However, 38 per cent of galleries expect online sales to rise to almost 30 per cent, and some 10 per cent expect half or more of their sales to take place online in the next three years. Alarmingly, only 41 per cent of those galleries have a clear idea of how to deal with online sales.

Curiously, European and US art buyers place more trust in online art buying than the potentially higher-tech Asian-based buyers; close to 70 per cent of Western collectors have paid online compared with just over 50 per cent of collectors in Asia.

Asian buyers are, of course, the great driver of today’s art market. In the London auctions in January 2013, $776 million in art changed hands, up 17 per cent from last year, with Asian collectors snaring their highest ever share of deals. Picasso’s Woman Sitting Near a Window went for $45 million to an Asian buyer bidding by phone. It’ll be comforting to online galleries to find Asian collectors will spend more online than the average Westerner; 38 per cent would pay £50,000 or more as opposed to 20 per cent of US buyers and 15 per cent of Europeans.

Inevitably online buying skews towards the young, but not by much. Some 67 per cent of the 25 to 29 year olds surveyed said they were likely to buy art online in the next year followed by 65 per cent of 35 to 39 year olds and 58 per cent of 60 to 64 year olds. When did everyone enter this comfort zone?

“I don’t think there was a witching moment; I think it’s crept up on us and it hasn’t happened as dramatically as it’s happened with other areas where literally the business has been completely transformed in a very, very short space of time,” argues Don Boyd, founder of HiBROW, the online arts review site. Boyd is preparing his own e-commerce platform to allow a smooth sync of comment, analysis and, ultimately, purchase.

“What surprises me is the size of deals that people are prepared to do online,” he says. “I recently bought something sight unseen online – admittedly it was print – but I emailed the dealer and I said, ‘Is that your best price, can you do it at a little less?’ They’re used to dealing online now as well as by email. Because that’s the way of the art market and some things are never going to change, whatever the tech.”