As the Battle for the Online Art World Sharpens, How the Players Are Adapting

As the Battle for the Online Art World Sharpens, How the Players Are Adapting
The headquarters of Art.sy in New York's Tribeca district, with founder and CEO Carter Cleveland in the foreground.
(Photo © Kristine Larsen)

Over the last five years investors have funneled tens of millions of dollars into fledgling websites that help users buy, sell, borrow, and learn about art online. Backers range from flush art world figures like Dasha Zhukova to successful venture capitalists such as Jack Dorsey, a founder of Twitter, and Peter Thiel, a former PayPal executive. But can a cultural sector that typically relies on exclusivity, personal contact, and (often) opacity make an effective transition to the web? And ?if it can, will these new websites find a way to monetize their services swiftly enough to give investors a good return? A profusion of selling sites appeared during the dot-com boom of the late 1990s and early 2000s, but only a few—among them the limited-edition contemporary print venue Eyestorm.com and auction service iCollector.com—are still around. Could history repeat itself?

Founders and funders of today’s start-ups insist that the time is right for the art business to expand online. “Think about the size of the art market and the fact? that it’s growing disproportionately in emerging markets where people are less connected to major art world hubs,” says Sebastian Cwilich, the COO of Art.sy, an online selling site and image repository that officially launched ?in October. Cwilich notes that the average distance between a buyer and seller on its site is 2,398 miles. The website VIP Art measured a staggering increase in visitors from emerging markets at its VIP 2.0 fair this past February, including a 409 percent increase in visitors from Turkey and a 278 percent increase in those from India.

 

Like other online art initiatives, Art.sy hopes to attract existing collectors and also to nurture new ones by offering art at a wide range of prices outside the gallery and fair contexts, which can seem intimidating to beginners. ?As a generation that has grown up with the web begins to collect, Cwilich predicts, “There will be more and more people who are comfortable discovering and buying art online.” Christopher Vroom, cofounder of the affordable-to-high-end purveyor Artspace.com, expresses comparable certainty: “It could take 10 or 15 years for a significant portion of the market—billions of dollars’ worth—to move online. But I absolutely believe that it will happen.”

Today these websites face two principal challenges to develop a brand and to create a sustainable business model. Branding has been complicated for all by the sudden rise of several companies with overlapping aims and market approaches. Within the last two years, the number of online art start-ups has shot up and now sits at well over 25. Unsurprisingly, the wider public may have difficulty distinguishing among the options. “It takes time on all these sites to figure out what’s different,” admits David Frankel, a partner at the venture capital fund Founder Collective, which has invested in the sites Art.sy, 20x200, and Paddle8.

A close look at seven of the best-funded, most innovative, and most intensely promoted art initiatives on the Internet today—Exhibition A, Art.sy, 1stdibs, Paddle8, 20x200, Artspace and VIP Art—reveals a variety of business models. Each seeks to capitalize on the dramatic globalization of the art market, which has developed significantly since an earlier generation of sites flopped a decade ago. “Some will make it and some won’t,” Frankel says. “At this point, we’ve spread our bets a little bit.”

The major players in the online art scene have carved out three basic ways to generate revenue. Straightforward e-commerce—which is enabled on sites like Artspace, 20x200, and Exhibition A—allows the user to purchase art with the click of a button. The site receives a cut of the sale. Sales tax is collected only from residents of New York (and Delaware, in the case of Paddle8). The second method entails charging galleries and dealers for curated listings. Once vetted, the sellers pay a fee to show their wares on sites such as 1stdibs and VIP Art. In the third method, known in tech circles as “lead generation,” the site performs an intermediary function much like online matchmaking. Websites such as Art.sy connect users with galleries and receive a commission only if that connection results in a purchase within a stated period of time.

Different start-ups target different kinds of collectors. Just as the brick-and-mortar art market is stratified according to low-, mid-, and high-priced work, so too is the field of online art sales. Exhibition A, the smallest of the seven operations, commissions editions from fashionable artists such as Richard Phillips and Nate Lowman, in which individual works range in price from $75 to $1,000, a fraction of these artists’ typical prices.

“In the online art world, it helps to be great at one thing,” says Exhibition A cofounder? Bill Powers, the owner of New York’s Half Gallery, who started the website in late 2010 with his wife, fashion designer Cynthia Rowley. Exhibition A produces editions in quantities from 10 to 100. The site relies on word of mouth and pop-up shops to drum up interest. “It’s nice to let people see the prints in person,” Powers says. Still, to hold special events in New York and Hong Kong for a virtual gallery is to raise questions about the viability of an online-only model. Powers acknowledges the effectiveness of a hybrid method. Without taking any venture capital, he says Exhibition A made a profit last year—though he declined to state how much—and is on track to do so again in 2012.

Targeting the lower end of the market with e-commerce on a larger scale is 20x200, a purveyor of affordable art editions that has produced more than 200,000 prints by more than 200 artists? since its launch in 2007. Like Powers, 20x200 founder? Jen Bekman (who runs an eponymous gallery on the Lower East Side) works directly with artists, including established figures like William Wegman and Lawrence Weiner. She splits revenue with them down the middle after allowing for production costs, just as a traditional dealer would. On 20x200, prices range from $24 for an 8-by-10-inch print from an edition of 20 by an emerging artist to $10,000 for an 80-by-60-inch print by photographer Christian Chaize in an edition of two. “When I started, people were very skeptical about how selling a $24 print could be profitable,” Bekman recalls. “In fact a significant portion of our business—about 15 percent—comes from purchases over $500.” All told, Bekman has brought in approximately $15 million in cumulative revenue. Although several years in the red followed a profitable first year, 20x200 anticipates making a profit again in 2013.

Some experts hold that affordable art is the only area of the market where the Internet can compete with established vendors. “Delivering art to the masses is a much more interesting business prospect than trying to get a collector ?to buy art online,” says James Hedges, president of the art-oriented investment firm Montage Finance. “Collectors engage in very specific behaviors—there is a communal aspect, an educational aspect, a physical, brick-and-mortar aspect to what they are doing.” The art sales sites may well force Hedges and others to reexamine their definition of a collector. How many works of art must someone buy online before qualifying for the title “art collector”?

By teaming up with high-end galleries and institutions, the website Artspace intends to render the distinction between cosmopolitan collector and online buyer moot. Launched in 2011 by former DailyCandy.com COO Catherine Levene and Vroom (who is also the founder of the artist grant-giving nonprofit Artadia), Artspace brings e-commerce to the middle market. The company offers editions and original artworks, ranging in price from $30 to $2.5 million, from 170 galleries and 30 museums, nonprofits, and cultural centers, as well as directly from a handful of artists. “There is an enormous amount of potential in the $25,000 to $35,000 range,” contends Vroom. Artspace charges its partners a commission on sales transacted through the site ranging from 10 percent to 20 percent—a fee slightly north of that of a typical art adviser but well south of a gallery’s markup.

“There are two principal segments of the art market that will most easily migrate online,” Vroom says. “The first is works below a certain price point,” which in fact account for a substantial portion of the total market. “The second is works that are so iconic and well-known that the collector has a very good sense of what they’re getting.” One such? work is an inscribed marble bench by Jenny Holzer that was sold to a German collector on Artspace for $117,000.

Artspace is teaming up with museums to tap into a wider pool of inventory. “Many museums have storage rooms filled with unsold prints produced by artists for fund-raising purposes. Artspace provides a platform to sell them,” Levene says. Through Artspace, the ICA Philadelphia has sold prints by Christo, Andres Serrano, Nam June Paik, and others, some of which had been sitting in flat files for decades “because of limited staff and time?to dedicate to them,” according to ICA spokesperson Jill Katz.

Competing with Artspace for the attention of middle market consumers is 1stdibs, one of the senior players in the online art field. The site, which started as a hub for design products 11 years ago, now markets itself as a one-stop luxury shop for goods ranging from furniture to jewelry.

Unlike Artspace, 1stdibs derives revenue from listings: It collects a flat fee based on how much inventory galleries list on the site and charges no commission. Collectors connect with galleries by phone or e-mail and complete their purchases off-line. “Other sites are focused more on discovery,” says David Rosenblatt, CEO of 1stdibs. “We’re a transactional environment—people come to 1stdibs to buy things.” Though Rosenblatt declined to disclose any financial information about the company, Hedges of Montage Finance says that 1stdibs has “been making a profit since their first quarter.”

The high-end contemporary art market—smaller than the lower and middle markets—has also seen its share ?of online start-ups. VIP Art, formerly known as the VIP Art Fair, debuted as an exclusive online contemporary fair featuring world-class galleries. New York dealers James and Jane Cohan founded the fair in 2010 with Silicon Valley entrepreneurs Jonas and Alessandra Almgren. The first edition, in January 2011, was bedeviled by technical glitches that at one point crashed the site. After holding a more successful second edition this past February, organizers rebranded VIP Art as a website that hosts selections of gallery inventory ?in addition to staging short-term selling events. The transition also brought layoffs: VIP cut its staff from 12 to 6. The belt-tightening came nine months after the site raised $1 million in angel investments from NextMedia founder Philip Keir and Brazilian collector Selmo Nissenbaum.

Galleries pay a monthly fee to use VIP’s listing service; only subscribers?can participate in the short-term events. VIP Art also collects a small, sliding-scale commission on high-priced art ?sold through the site, but that “isn’t our primary source of revenue,” says associate director Cristina Biaggi. Each gallery? has the option of activating e-commerce, though some galleries aren’t comfortable with it, according to Biaggi, because it diminishes “the opportunity to build relationships with new clients.” Dealers may also want to keep prices confidential or, according to some art advisers, exercise more control over who buys their works. As for the appeal of buying high-priced artwork online, Biaggi says, “collectors know that when they come to VIP they can have direct interactions with a variety of vetted dealers.”

A similarly stringent vetting philosophy is proclaimed at Art.sy, which aims to assemble a representative and historically significant image bank. Cwilich estimates that Art.sy currently has archived 20,000 images from 275 galleries, 50 museums, and numerous private collections. Others may find that stringency insufficient: After perusing the website, Robert Storr, dean of the? Yale University School of Art, told the New York Times, “This place is littered with really terrible art that nobody should be directed to.”

Art.sy plans to profit from a tiered commission structure ranging from 6 percent to less than 1 percent, according to price. If a site user selects a work of art for purchase, she can contact an Art.sy representative who will put her in touch with the gallery (an example of lead generation at work). If the user is a new client for the gallery, the commission applies to all purchases made within 120 days. If she is an existing client—a possibility, but perhaps an unlikely one—the commission is restricted to the work spotted on Art.sy or to another work by the same artist purchased within the 120-day period.

Venture capitalists stress that start-ups may change their business models dramatically during the first few years of operation. Or right out of the box. Upon its public launch in October, Art.sy announced that it would serve as the exclusive online platform for Design Miami in December and the Armory Show in March, allowing collectors to preview works before the fair and to make purchases online for a short period afterward. Artspace and Paddle8 provide the service for other international fairs. Art.sy wooed fair organizers by waiving the standard commission for its inaugural partnerships to encourage gallery participation.

Art.sy isn’t alone in modifying its game plan. When Paddle8 launched in May 2011, the website marketed itself as a venue for online exhibitions curated by marquee names like Robin Williams and Marina Abramovic. ?It soon abandoned that model, opting to partner with art fairs and galleries to provide a platform for selling and previewing art. Last month, the site ended its listings to become a virtual auction house. Although galleries will no longer display art on Paddle8, they can subscribe to its new inventory management system, Archiv8. For a monthly fee of $200 (or $100 for a standard subscription with fewer bells and whistles), dealers can track purchases, access a shipping calculator that processes quotes from multiple vendors, and offer collectors a virtual viewing room.

“It’s an area of our business we’ve really seen take off,” Paddle8 cofounder Alexander Gilkes says of online auctions. By September 2012 Paddle8 had held 35 charity auctions, which generated $3 million in total revenue; the site takes? a 5 to 7 percent commission from the seller. Paddle8 will supplement charity auctions with themed auctions every two weeks. The site offers a 15 to 20 percent discount off market rates on shipping and insurance, services it purchases in bulk. Gilkes says the site will continue to collaborate with art fairs and will assist Art.sy in processing online transactions during the Armory Show in March 2013.

Dealers remain uncertain about how online art sales sites will affect their bottom line. “Website directors? say, ‘Oh, it’s curated,’ or ‘These are the top 50 galleries on the planet,’ but it’s spectacular material and crap side by side, just like in real life,” says Magdalena Sawon, owner of New York’s Postmasters gallery, which participated in VIP Art’s contemporary fairs in 2011 and 2012 and until recently showed inventory on Paddle8. “I can’t say I’ve closed enormous numbers of deals there,” reports Sawon.

Many, like Edward Greenacre from London’s Rokeby Gallery, who has sold works for up to $5,000 through both Paddle8 and Art.sy, continue to assess the platforms. “At this early stage we are still learning from experience,” he notes. “Whether the market for online platforms will become saturated or if users will show brand loyalty to certain platforms is yet to be seen.”

As dealers attempt to decide, platforms compete for them as much as for visitors and collectors. Art.sy, for example, offers gallery ?partners a free iPad application? for presenting artwork to?clients. (Similar programs cost? much as $3,500 per year.)? It also provides a page on its? website devoted to analytics. ?“In the long term, it should? become like a Bloomberg? terminal for the art world,”? Cwilich explains. “You can? see where an artwork is being? viewed around the world and ?by how many users. As you? can imagine, this would ?be very helpful if a dealer had ?to decide whether to take a? Warhol show to Hong Kong, Basel, or Miami Beach.”

While substantial profits and a loyal global audience remain the goals for most sites, investors are finding other ways to measure success in the present. “Investors like? to see traction, either in the form of traffic or the number of registered users,” Frankel says. “I like to see traction rather than revenue early on. We need to know that there are customers for what you’re selling.”

This article appears in the December 2012 issue of Art+Auction

UPDATE: A previous version of this article stated that 20x200 has sold over 20,000 prints and brought in $7 million in revenue. In fact, the company has sold over 200,000 and brought in $15 million.