Online art platforms are changing the way people collect art. As more enter the market, we ask, is investment bad for business?
The art industry is dramatically changing. In recent years, the launches of online ventures have boomed as the art world shifts towards the internet and traditional art businesses have been forced to adapt or faced a doomed future. Today, there is a lot of venture capital pouring into these new businesses, but very little public data is available to evaluate the stability of these investments. Do they help or hinder the success of these companies in the long run?
Look at the example of the global marketplace Artsy. When its founder Carter Cleveland studied computer science at Princeton University, he struggled to find art for his college dorm room and found that no platform existed to search all the world’s art. Today, eight years after its foundation, Artsy has over 180 team members worldwide and more than 800,000 artworks on the site by over 70,000 artists. The business has drawn likes in the form of investors such as Jack Dorsey, creator of Twitter, Eric Schmidt, chairman of Google, Rich Barton, founder of Expedia as well as Bob Pittman, co-founder of MTV and CEO of IHeartMedia. Indeed, by only looking at Artsy’s financials, it sounds like a great success. But has it really been an easy road to victory?
“Like any other start-up, Artsy has encountered challenges along the way,” says Anna Carey, spokesperson for the company. “We are lucky to have investors and advisors from across the art, tech and business worlds who have been instrumental to Artsy’s success.”
A start-up it has not gone so well for is Paddle8 (they declined to comment on this story). Last year, the New York-based auction house merged with Berlin-based Auctionata, but it became an independent company again earlier this year as Auctionata declared insolvency. Moving forward, Auctionata has plans to restructure with the goal of recapitalising. However, to add to the corporate turmoil, accounting firm KPMG has accused its management of severe trade violations. In the worst-case scenario, the company may not be able to continue business operations, according to the KPMG report. But despite the turbulence, Paddle8’s sales reportedly doubled last year.
A rival firm that has not used the support from investors is the online ‘introducer’ MyArtBroker. Founded a year after Artsy, brothers Ian and Joe Syer put an initial £3,300 of savings towards building the business. They built a simple website, and it helped them develop the transactional model and work out what would actually be required going forward. However, “it was a really painful way to start as it felt as though we were continually compromising,” Ian Syer says. “But in hindsight, we were very fortunate being a new company.”
Another relatively new company is Sedition. It is an online platform for artists to distribute and sell their works as limited edition videos and images that are viewed on screens and devices. Similar to MyArtBroker and Artsy, their journey “has been a whirlwind”, says Ashley Wong, Head of Programmes and Operations at Sedition. Founded by Harry Blain in 2011, the firm is today funded by a number of investors who they have a close relationship with, according to Wong. “Other investors may be different and more challenging to work with,” she says.
Investors often invest by claiming a stake in the business and therefore impose their own views. This is not always easy, but in the examples of Paddle8 and Auctionata, their recent difficulties did not happen because of such internal struggles. In the latter’s case, the firm simply could not secure the required financing quick enough according to chief executive Thomas Hesse.
So, what does Artsy, Paddle8, MyArtBroker and Sedition have in common? Firstly, they are all art start-ups aiming to transform the traditional art industry with online ventures. “The art world has long been one of the industries most resistant to change […], but we are seeing a change as players from across the industry increasingly embrace technology,” says Carey. As private companies, they are also reluctant to share specific financial details although Artsy and MyArtBroker say their year-on-year revenue has doubled and grown 110%, respectively. Sedition claim that they have only seen more growth in the past year.
“We are still seeing the art industry slowly coming to terms with the online market, but the idea of buying and selling art online generally is widely accepted, and adoption is growing even for those higher ticket items, like art”, says Syer.
The examples make it clear. Auctions, marketplaces and other online ventures are important to the art world’s future. However, well-established international auction houses such as Sotheby’s and Christie’s are leading the field in e-commerce and online engagement, leveraging their brands to advantage in the online space. But to date, no one dominant player has yet emerged in the very competitive online marketplace. In 2016, the dealer sales market amounted to $26bn while online sales were at around $1bn, according to a June report by the European Fine Art Foundation (TEFAF). In April, insurer Hiscox found the overall value of online sales in the art market increased by 15% in the last year. Indeed, online firms seem to be doing little so far to disrupt the art market.
However, as generations grow up with the internet today, it is destined to change. And during this point in time, start-ups such as Artsy, Paddle8, MyArtBroker and Sedition are leading the way. It will never be an easy journey so for this to continue; investors are needed. Artsy would never have grown so quickly without its high-profile investors. MyArtBroker’s progress may have been slowed down by using private savings, but it gave more freedom and independence. All in all, investments pick out the good from the bad while it also creates opportunities to grow. The relevant businesses will survive as there is a market for them, but many will also struggle and eventually die – that is the ruthlessness of any industry. No matter where the capital comes from, there is always a risk of the business going bankrupt. So, whether it is an investor’s money or somebody’s savings – it simply does not matter. The road to success is purely about playing into the hands of the market.