Scrutinizing the Sexy New Art-Tech Industry: It’s Not a Bubble, It’s Barely a Blip
The Internet is a great place: It has revolutionized the way that we communicate, shop, and consume information. But certain things have a certain je ne sais quoi to them that transitions awkwardly to the Web, and thus far, art is one of them. While there are seemingly innumerable Web sites popping up and claiming to cater to the art world — which we as the art media, at least, embrace immediately because we like things that are young, cool, and aesthetically pleasing (as most of these sites are) — few of these new ventures have actually established a real business. What, if anything, will come of art’s current love affair with e-commerce remains to be seen.
Montage Finance, a New York City-based art finance outfit, recently came out with a report detailing the Web-art intersection, “The Art Market’s Presence Online: A Curated Survey,” which looks at the strengths and weaknesses of the most prominent art commerce sites. To get a sense of the prospects of the new breed of art businesses, ARTINFO sat down with Montage’s president, James Hedges, who told us that he became curious about art on the Internet after being recruited to be the CEO of two different Web-based art companies. There is, however, a reason he turned both jobs down.
Though online sales are currently only an infinitesimal piece of the estimated $80-billion art industry, you could be forgiven for thinking we might be in a full-on art tech bubble given all the recent hype and the sheer novelty of reports about venture capitalists pouring money into art-related start-ups. Paddle8 just scored a $4-million infusion of venture capital, Artspace just raised $2.5 million, and somehow the not-yet-launched Art.sy keeps popping up in e-art-commerce discussions because the name Dasha Zhukova is newsworthy (see what I did there?). So far, according to the Montage Finance report, there are a dozen or so serious art commerce websites out there — but few of these make any money at all. They are all betting on some big future shift in the art world or in society that hasn’t happened yet.
Given the omnipresence of the Web, and all the stock-market speculation in companies like Groupon and Pandora (neither of which is yet profitable) investor interest in tech companies that provide services related to the booming art industry — which has been notably resiliant in the face of the recent financial crisis — seems logical. What, then, are the barriers to success? One of the problems with art on the Internet is that it is hard to scale an industry that prides itself on its elitism. Companies that do best on the Web — like Amazon, Apple’s iTunes, and Google — take advantage of economies of scale. They make their money by offering products or content at low prices — meaning low profit margins — and selling high volume (books for Amazon, songs for iTunes, and ads for Google). Other well-known sites — the nonprofits Craigslist and Wikipedia, and the very-much for-profit Facebook — provide a service (a platform for sales, socializing, or knowledge sharing). Few art sites can hope to do the former, and some of the ones that do the latter don’t even realize it, and so aren’t capitalizing on it.
“Most of these businesses have been built just to be sold or raise money at a certain price,” Hedges noted, refering to the recent crop of art start-ups. “They don’t really have, in my mind, a lot of long-term viability.”
The strongest player in the field (for purposes of this article we’ve excluded auction houses) is 1stdibs — a sort of luxury brand Craigslist, for those who don’t know it — which has been around for 11 years and has continuously been profitable, Hedges says. But it is not just an art sales site, it provides a valuable service bringing together dealers and consumers on a large scale. Notably, it has a number of different verticals in addition to visual art — fashion, jewelry, watches, furniture, and real estate — making it a global luxury platform, with a broad potential audience. The site allows prospective buyers to browse a long list of wares (with far less overhead than would be necessary for the huge commercial warehouse it would need to show everything physically), and either make an offer or contact the dealer directly to make a purchase.
VIP Art Fair, one of the most talked-about recent Web-art ventures, is supposed to be a platform that approximates the art fair experience, facilitating sales (though no sales are made directly through VIP, which makes its money off of selling online “booths”). But because it operates on such a short timeframe, quite a few dealers over the last two years have said it isn’t succeeding in its mission. However, it does work well as a networking platform. Through VIP, international collectors and galleries have a specified date and time to come together and browse over the Internet (“for the price of an ad in Artforum,” according to one dealer). But that is only the beginning of the conversation, not the end of a sale. VIP’s problem, according to Hedges, is not recognizing that its actual use has strayed from its stated one. “If they miss the mark on communicating what they are supposed to be doing, then it doesn’t matter if there is still a tangential benefit, it will seem unintended and therefore people will not ascribe value to it.”
What about the rest — all of those sites that try to sell prints or low-cost originals or even high-cost originals with gallery partnership? They are certainly appealing to visit, but they don’t actually sell enough to make money, in Hedges’s estimation. There is 1stdibs, which is profitable, and Paddle8, which Hedges described as “pretty” but so far unproven, but otherwise, “the other players I view as nothing more than glorified poster art companies.”
Still, quite a few people see an opening for art on the Internet, and sooner or later someone might get it right. As of now, the thought is stalled in hype mode, and no one is making (or losing) their fortunes on it. And even Hedges cautions not to be too negative. “Just because it is a good idea and a lot of people are throwing money at it doesn’t mean it is a bubble,” he says.