Paddle8's Real Plan: The Chic Art Site's Surprisingly Prosaic, Possibly Revolutionary Business Model
This is not an article about Paddle8's well-designed Web site (nor its office style), but rather a story about what's behind what you see online and what the much-talked-about company is really up to. On the surface, it seems like one of those other sites that have a goal of educating the broader public into becoming collectors or taking art commerce online. But if you look at the roster of the site's management — a former LVMH executive and Phillips de Pury auctioneer, a McKinsey alum, a few Harvard MBAs — not to mention the $4 million in first-round funding it has received from esteemed venture capital firms Founder Collective and Mousse Partners, there has got to be something else going on.
And there is. It's just not as fun to talk about as the endeavors that have grabbed headlines for the site so far, which have included promoting an online exhibition curated by Marina Abramovic and sponsoring a performance featuring James Franco during Performa.
"My whole career has been watching how the Internet disrupts more and more businesses," Founder Collective managing partner David Frankel told ARTINFO recently in a conversation about his bet on Paddle8. "When it comes to the art world I think the Internet will augment it."
If your view of Paddle8 is somewhat fuzzy, you probably aren't the only one. In our unscientific survey of people in the art world, most have heard of the site (and its elegant design), but few could put their finger on what its purpose was. Plenty of Web sites are trying to make a go of selling art online, and while Paddle8's site serves as an intersection for art buyers and sellers, online commerce isn't its real game. In reality, it is trying to capitalize on streamlining the less romantic services that make selling art difficult and expensive — shipping, handling, invoicing, billing, and insurance. It hopes to profit by offering reduced rates on these services to the many galleries that use its platform, thereby taking advantage of bulk discounts and making it cheaper for the art world to conduct the back end of its business. The company, in turn, takes a four percent commission on deals done through the site.
The site maintains a veneer of exclusivity — its contents are viewable by members only. If you want to take a peek, you can either be invited by a dealer or request membership from the Paddle8 "committee." However, make no mistake, the Web site is betting on signing up large numbers of users. Very few applicants are turned away. But it's the gallery sign-ups that really matter.
"Because you have so many galleries signed on, I am able to offer an en masse 15 to 20 percent discount on top of the ability to process that shipping so much faster," noted the site's managing director, Osman Khan. "Those are the types of economies of scale you are starting to see working with Paddle8, rather than every gallery trying to do it on their own."
Here's how it works: If, say, a gallery in New York sells a work to a collector in Los Angeles using the Paddle8 site, there are a number of discounts it can ring up. The gallery can bill the collector through the site, saving 60 basis points on the average American Express transaction (the normal rate is 3.5 percent — the site has it down to 2.9); save 15-20 percent on shipping with a quote automatically, rather than having to spend a day waiting for quotes from different companies; and it can offer the buyer Paddle8's $149 flat-rate art insurance policy, which covers $25,000 worth of art in-transit and in-home. And they can do all of that in a couple of clicks.
As both Frankel and Khan explained, the site isn't seeking to change art world mores, but rather attempting to complement established precedents. "Buying art is very different to buying a commodity like a phone or a camera online. In some ways it is like buying a house. If you know the artist and know the gallery owner people are open to buying art online," said Frankel. "Trust is still incredibly important."
So on Paddle8, as in a gallery, collectors browse for free but there are certain advantages to being acquainted with the actual dealer. Galleries can list prices as "upon request," and commerce isn't a one-click affair: a variety of options are available to reserve, inquire about, and offer a price on a work before actually closing a deal. The gallery can likewise refuse business. The collector and the dealer even have the option of taking the transaction offline (though, of course, this means leaving Paddle8's shipping-and-handling discounts online as well).
Though originally Paddle8's business plan seemed to rely on promoting itself via online exhibitions curated by celebrities, the site has started migrating toward big partnerships with art fairs to attract members. Last weekend's Armory Show was the third fair the company took online, after NADA Miami Beach in December and Art Los Angeles Contemporary in January. During the online preview week for the Armory, Paddle8 had "just shy of 200 offers, inquiries, and reserves" for art posted on the site's online version of the fair, Khan said, adding, "I think the best part of it was the reserve feature. We launched that earlier this year, but the overwhelming use of it by collectors [during the Armory Show] was fascinating."
Paddle8 won't disclose how many collectors are on the site, but it launched last June, and the founders have stated that about 2,000 join every month, with spikes during the three art fairs the site has partnered with, so it's possibly in the 10,000 to 15,000 members range (if their claims are correct). During Armory Week, about 100 galleries participated in the site's online version of the fair. Half of them received inquiries or offers, and the site had almost half a million pageviews from over 100 countries, according to a press release.
So, what does all this mean? If Paddle8 succeeds in its mission — and it is still much too early to comment on that — there is one way in which it could indeed be disruptive of business as usual in the art world: fledgling art professionals can say goodbye to back office gallery jobs writing invoices and searching for the lowest shipping quotes.