The Online Art Market: Peasants and Diamonds

How low is the "low end" of the online contemporary art market? In Loeb's recent public letter to Bill Ruprecht, he criticizes Sotheby's for focusing on "high value" lots while shunning "lower value" lots that could be sold via new technologies, i.e. online auctions. Yet, in spite of this strategy, Sotheby's continues to trail Christie's in market share of items over $1,000,000 - "high value" lots. An underlying assumption here seems to be that online auctions are most effective for artwork under $1,000,000. But is this actually true?

Similar language of "high-end" and "low-end" emerged again yesterday in Artvest's response to Sotheby's dismissal of Loeb's letter. Artvest's fourth point precisely reflects my post last week - in order to remain competitive in today's art market, auction houses must implement sales strategies for selling lower ticket lots online.

Sotheby’s has defended its current strategy of focusing on the high‐end as an effort to position itself like a private bank. The flaw with this thinking is that most of the leading publicly traded banks such as JP Morgan, have both private and retail banking divisions, as the two have different business cycles, risks and fees, often supporting and complementing one another in a dynamic marketplace. If JP Morgan were to focus on its private bank at the expense of its Chase retail unit, Wall Street would consider it a much lesser company indeed.

This is in fact what has happened to Sotheby’s in the thirteen years that Mr. Ruprecht has pursued his flawed private banking concept, and the chickens are just now coming home to roost. By focusing exclusively on the high-end where the competition with Christie’s is most extreme, Sotheby’s has made itself uniquely vulnerable to the erosion of its Auction Commission Margin, the main revenue stream that accounts for approximately 80% of the firm’s Total Revenue.

Moreover, by leaving the low-end uncontested for Christie’s, that company can charge higher, non‐competitive rates in segments where Sotheby’s is no longer active, and offset those gains against other losses in commission give‐ backs at the high-end. (In this regard, we have a material disagreement with Mr. Loeb: Christie’s is, as Artvest can attest, verifiably buying market share at the high‐end. Yet the larger point is true, that Mr. Ruprecht’s management practices have exacerbated the problem.)

It's a given that the lower end of the market could generate substantial income for auction houses, just as retail banking expanded JP Morgan's business. However, why all this emphasis on "low value"? Are Internet sales that embarrassing for the contemporary art market? Is it more humiliating to have a lot BI (Bought In) online rather than in the auction house room? Perhaps not. Perhaps our expectations are too low.

Let's delve a bit further into the varying definitions of "high" and "low." To use Christie's online sales as an example, most lots reflect the price range and quality of smaller mid-season sales such as Christie's First Open or Sotheby's Contemporary Art Day sales. Artemundi breaks down the median price of sold lots from Sotheby's and Christie's May 2013 day sales, ringing in at $111,750. For sites Paddle8 and Artspace, however, most lots are under $10,000. This also holds true for Amazon Art, where 95% of the works are under $10,000.

Unfortunately, because both Christie's and Paddle8 refuse to post online sales results, it is not possible to analyze the hammer price and percentage of lots sold. This would be the most accurate method for looking at what price segment is currently dominating the online market. One lone wolf posts sales results - Auctionata, a Berlin-based online auction start-up founded in 2012. Even so, there are some exceptions that clearly point to the future of the online art market.

We have the Warhol Flower on Artnet that sold for $1,300,000 in 2011 - the first online lot to break the million mark. Then, this past June, Auctionata sold a Schiele for $2,400,000. Auctionata only sells artwork online and is the house that Christie's and Sotheby's should be following closely. They don't seem to find the Internet embarrassing. And they certainly are not limiting the online art market within the confines of an "acceptable" price range.

With numbers like these, does it really make sense to designate the Internet as a vehicle for "low-end" art - whether that means under $10,000, under $100,000 or under $1,000,000? Why not implement a digital strategy that encompasses the entire spectrum?

Van Gogh "Peasant Shoes" (1887), Andy Warhol "Diamond Dust Shoes" (1980)