Average Is Over VII: Snacking on the Middleman
I devoted the last installment of this series to playing Darwin with the physical gallery ecosystem, speculating on which tier of the market natural selection would favor as digital sales become a dominant force in the art industry. My conclusion was that the blue chip branded galleries would be the sole survivors–partially because existing evidence suggests that both the mid-size physical gallery and the mid-market art it concentrates on have been evaporating for years, and partially because the makers’ emporiums threaten to hunt the low end physical gallery into extinction.
However, the elite physical galleries that emerge from the reckoning will only do so by adapting. That will mean adding an online retail platform as a complement to their physical exhibition programming. The question at the heart of today’s post is what that online platform will be.
Right now, it seems to me that there are two possibilities. The first is for each gallery to build its own dedicated digital sales arm, likely as a branch of its main web presence, a separate mobile app, or some combination of the two. The second is for every gallerist to effectively subcontract her e-commerce to an online middleman. Given that choice, I believe the most profitable and most prestigious galleries will ultimately choose the vertically integrated option.
To explain why, I first have to clarify exactly what I mean by an “online middleman.” While at first glance one might think that the makers’ emporiums satisfy the definition, there are important distinctions between what they do and what a pure online middleman does. Like the makers’ emporium, the online middleman’s theoretical appeal to its partners is outreach to a wider, global audience: You give us artwork, we’ll give that work exposure to buyers on a mass scale, and in exchange for that service you pay us. The core difference between the two models is who they’re willing to partner with.
Unlike the makers’ emporiums, the pure online middlemen I’m referring to do not allow artists to sell directly on their platforms. Instead, they restrict their offerings to inventory from established galleries and dealers of their choosing. (At present, the selection process tends to be governed by a formal online application like this one, which I’ll circle back to a bit later.) So makers’ emporiums connect artists with collectors while online middlemen connect galleries with collectors.
Those respective arrangements also determine the type of work being offered on each platform, at least to an extent. Makers’ emporiums are strictly a part of the primary market–new works being sold for the first time. In that sense the makers’ emporiums can still be said to “represent” artists in some of the same ways as a traditional gallerist. Online middlemen, though, can plant one foot in the primary market and the other in the secondary (resale) market. It all depends on what their partner galleries want to offer. But even if selling new works, the online middlemen still never represent artists in their business model; the closest they get is publicizing primary work for the gallerists who do. In a broad sense then, it’s fair to say that makers’ emporiums serve artists while online middlemen serve other businesses.
When presented in those terms, it may sound like online middlemen are a natural solution for any high-end gallery’s digital sales department. But the problem is that the above discussion is incomplete. Why? Because it excludes our old friend branding. And leaving branding out of any discussion of the blue chip art market lands somewhere between naive and dangerous. It’s like being the out-of-towner who ignores the shell-shocked locals’ ominous warnings about “bad things” having happened in the old Victorian you just bought for a song.
As we know by now, blue chip galleries like Gagosian, Pace, and Hauser & Wirth are high-end brands in the art market, no different than Bugatti is to to the automotive market or Hublot is to the timepiece market. I’ve argued before that their co-sign is at least as important to an artist’s success as the artist’s work itself, and frequently much more important. The key is that each blue chip gallery’s clientele consists almost entirely of wealthy insiders–established, serious collectors and profit-hungry COINs (Collectors In Name Only)–who lust for the gallery’s brand and are therefore eager to pay a premium for the work under its banner, often regardless of what the work is. The power flowing from the right gallery’s name can thus transform any mangy, unknown MFA student into Dirk Diggler with one hot tub dip (SFW, surprisingly).
These mega-galleries are the definition of presentation-based businesses. Every part of their operations must uphold the aura of luxury and refinement their owners have worked so hard to cultivate. That includes their e-commerce platforms. Unless a third party they route their clients to for online sales fulfillment is seen as just as upscale as the gallery itself, the transactional segue can have the same effect on the mood as the Kennedy assassination had on every lunch date in Dallas. For a more direct comparison, think of some high-powered fashionista’s reaction to shopping at Alexander Wang and then being ushered into a Walmart to complete her purchase. The entire bubble of class bursts in one jarring heartbeat. It’s like the moment in The Shining right after Jack kisses the beautiful woman in Room 237 and she transforms into a ghastly, sore-eaten crone (okay, that one = NSFW).
This is the primary reason I’m bearish about online middlemen for high-end fine art sales: In other retail sectors, the model tends to thrive by offering accessibility, convenience, and competitive pricing to a mass consumer base. (See: Amazon Marketplace, the iTunes Store.) Those qualities clash violently with the business model of blue chip galleries, which draw their power (and profitability) from scarcity, exclusivity, and the premium pricing those qualities reinforce. The top tier of any market must keep their clients in the cloud city from start to finish. It’s basic luxury brand psychology: If the product looks friendly to everyone, it becomes undesirable to the real target audience.
The vulnerabilities produced by this paradox become even clearer when we take a look at the major existing players in this category today. I’m going to concentrate on arguably the two most prominent–artnet and Artsy–because together I think they demonstrate all the main caveats and difficulties endemic to the business model as a whole.
The first standout trait of both entities as e-commerce platforms is that they act more as promotional directories than as actual points of purchase. In exchange for a flat monthly fee (currently ranging from $350-$1,200, depending on membership benefits), artnet grants sellers the opportunity to create profiles on their site with listings of (possibly) available works and contact details, along with any other general info they want. Interested collectors can then use that info to try to negotiate with each gallery directly, with artnet acting as nothing more than a passive go-between who provides the data to the client and forwards the email inquiry to the gallery.
Meanwhile, underneath the social media-influenced ability to follow, favorite, and share artists’ or galleries’ content online, Artsy follows a nearly identical business model when it comes to actual gallery sales. Like artnet, they offer established art sellers a hosting service for a monthly fee rather than a commission. The only core difference in their gallery partnership model is that they also offer “optional e-commerce functionality.” Presumably, utilizing that option means empowering Artsy to act as a direct point of purchase instead of a switchboard operator for email inquiries. But if a gallery declines that functionality, the works listed on their Artsy pages can only be acquired by collectors through separate negotiations, no different from artnet.
The necessity of separate negotiations cakes almost as much soot over the online middlemen’s shine as the branding issue. As tech adviser and recent art scene initiate D.A. Wallach crystallized in a widely circulated blog post a few months ago, two of the most disruptive aspects of online art sales are its ease and inclusiveness–both qualities that have historically been absent from the physical gallery experience. No wait lists, no subterfuge, no preferential treatment for prominent collectors. The makers’ emporiums thus stand as the Platonic ideal of this mentality. Every piece browsable on their pages is clearly marked as available for a set price, and all that’s required of an interested client is their payment info (and of course their solvency). See it. Cart it. Buy it. Done–all without ever leaving the site or languishing in limbo for a reply.
But unless an online middleman acts as a direct point of purchase, it wrenches all this newfound agency out of the client’s hands and delivers it right back to the galleries with a sparkly bow and a mash note. Operating as little more than an interactive directory means that the artnets and Artsys of the sector grant every member gallery, should it so choose, the prerogative to ignore every inquiry that comes in from every online buyer who doesn’t meet their stringent vetting criteria. It restores online art sales to the same power imbalance as in the physical gallery system.
This is especially true at the high end of the market, where the customer service experience is largely classist, often combative, even borderline humiliating. The average person who walks into a blue chip gallery and innocently starts asking pricing or availability questions to the unreadable sphynx manning the front desk is far more likely to be treated like a homeless person than an individual worthy of one’s respect and time.
The same dynamic applies online. The higher-end the gallery, the less likely its brain trust will be to respond to random email queries from unknown clients browsing from anonymous locations. Unless a buyer can prove that they are worth the blue chip gallery’s energy, she might as well be writing her inquiry in Klingon.
I speak partly from personal experience here. When I was still working in the gallery world, for years I was the one who filtered our artnet inquiries up the organizational ladder. My superiors had me reply to maybe one in every twenty, normally for pieces that had been languishing unsold for months or years. In other words, we only engaged with potential artnet buyers if we felt there was no other practical way to sell the inventory they were asking after.
I’m not going to proclaim under oath that every elite-level gallery takes an identical approach online, but a quick survey of the existing middlemen suggests they do. One way to get a sense of this is by checking to see what percentage of the works advertised on a blue chip seller’s artnet profile have their “price” field filled with either the infamous “Price on Request” or the equally opaque “Contact (Gallery).” For Pace, it’s true for 100% of their offerings. Same for Hauser & Wirth. And ditto for David Zwirner, too. (Note: I couldn’t complete the trifecta using the examples I began this post with because Gagosian doesn’t list on artnet, possibly because Larry Gagosian is an adviser to the executives of Artsy.)
My exploration of Artsy’s sales landscape revealed it to be just as barren of user-friendly transparency. Hauser & Wirth ignores the platform entirely. Pace, Gagosian, and Zwirner all maintain profiles–but just as on their artnet pages, the price and availability data for their advertised inventory is completely masked, reducing any interested parties to firing an email into the void and waiting to see if it even provokes a response.
And forget about open-and-shut purchasing opportunities, too. Not only did none of the high end galleries I clicked through on Artsy appear to be using any kind of expanded e-commerce functionality–none of the galleries I explored at any price level did so, either. Admittedly, I didn’t spend hours upon hours searching. But if even a random sampling couldn’t turn up any click-to-buy results, that seems like a meaningful signal about sellers’ attitudes as a whole. Nor does it help that the site seems to offer no way to filter results according to which pieces can be directly purchased, either. So if Artsy is indeed more transparent and user-friendly than artnet, I didn’t find the niches where the populist magic happens.
All of these ideas gel with what little data is available about online art sales to date. The Hiscox Online Art Trade Report 2014–a survey of about 500 online art buyers sourced from Twitter, Facebook, and the subscriber base of the art market analysis site ArtTactic–found that about 70% of respondents who had bought work through Artsy had done so for pieces priced under 10,000 GBP (~$17,000). Of the other 30%, 22% fell into the 10,000 - 50,000 GBP range (~$17,000 - $86,000), leaving only 8% who bought work valued at over 50,000 GBP (~$86,000).
As of my writing, Artsy currently offers a grand total of 168,841 artworks for sale across all price tiers. Not coincidentally, their ‘sort by price’ feature shows that a mere 3,200 (about 2%) of available works cost over $50,000; 14,054 (about 8%) cost $10,000-$50,000; and the remaining 151,587 (about 90%) cost under $10,000.
Correlation is not causation, of course. So when it comes to the possible link between buyer behavior and Artsy’s offerings, it’s fair to ask which variable is the chicken and which is the egg. But the simple truth is that elite galleries offer few pieces that fall into a (relatively) earthbound price range. It just doesn’t make business sense for them. A prominent gallerist once told me years ago that it takes him the same amount of effort to sell a $7,500 photograph as it does to sell a $500,000 painting. As someone tasked with the presentation and administration of sales across the entire price spectrum for years, I would confirm the basic accuracy of that idea.
Paradoxically, it’s often even easier to sell higher priced work than lower priced work. Why? Because any client seriously considering a piece at a six figure-plus altitude is normally wealthy enough that such an expense is, if not meaningless, then at most modest. In contrast, a collector with a ’$10,000 or less’ allowance may feel the sting of spending that sum more acutely because of her comparatively lower net worth. If so, that often makes convincing a less wealthy collector to acquire a less valuable work with a low margin more strenuous for the gallerist than convincing the globe-trotting plutocrat to acquire an extravagantly priced piece with a much larger margin. So how much incentive is there for a major gallery to concentrate on the lower price tier, whether it’s online or away from the keyboard?
An elite gallery’s ability to partition its inventory from the general populace thus short-circuits the greatest utility of the online middleman. These third parties theoretically exist to channel business from a wider audience to galleries. But the dilemma is that blue chip galleries aren’t sustained by a wider audience; they’re sustained by repeat acquisitions from a known tier of high and ultra-high net worth clients chasing a specific caliber of art because it’s inaccessible to everyone else, not despite it. So the objective of any high end galleries’ online sales platforms shouldn’t be to attract new applicants–it should be to streamline the sales process for the VIPs already inside the clubhouse.
Given all of the above, it’s worth noting that almost none of the current major online middlemen limit their businesses strictly to providing e-commerce to gallerists, even if we define “e-commerce” only in the “passive go-between” sense. Artnet maintains multiple revenue streams, including paid access to an auction results database and analytics reports, along with running their own online auctions–the only works you can buy directly through the site itself without the ignominy of trying to contact a seller separately.
Meanwhile, Artsy’s focus seems to be pivoting from online sales to educational content, headlined by their Art Genome Project, an algorithm-driven attempt to break down artwork into a number of quantifiable stylistic traits which Artsy members can theoretically use to help pinpoint what they like and why. The initiative also opens the door to a future where the site’s algos can recommend work a user might like based on their preferences, in the same style as Pandora or Netflix. (“If you like $75,000+ Larry Bell cubes, you might also like this $350 wasp nest enclosed in a block of resin!”)
Maybe Artsy users will leverage that knowledge to buy something. Maybe they won’t. Considering the lack of sales presence from the blue chip galleries I’ve cited in this post, the impression at the top of the industry’s food chain seems to be that, at least for now, no matter what Artsy users may learn about their taste, they aren’t likely to convert their newfound education into meaningful spending. And for the peak of the market, I don’t think that will change in the long run.
Now, there’s one obvious counter to everything I’ve written so far: What if the middleman rejected the “passive go-between” role and only offered direct point of purchase sales? No need to contact the gallery for pricing, no mysteries about availability, just pure unadulterated e-commerce at even the loftiest values. If that’s the killer app, then it leads us to the only company I’m aware of that is charging headlong into the uncharted tundra of pure fine art e-commerce: Amazon Art. And so far, their example is not an encouraging one for the model.
As with artnet and Artsy, artists cannot sell their work directly on Amazon Art. Bezos’s brainchild will only partner with established galleries or dealers approved through the application I linked to earlier. But instead of charging a monthly fee for listing on its platform, Amazon’s pound of flesh for participating galleries is a sales commission ranging from 5-20%, with the percentage falling as the sales price rises through set benchmarks. (For comparison’s sake, professional art consultants tend to charge a 10-20% commission for engineering a sale for a gallery.)
Now, any blue chip gallery would be welcomed to Amazon eagerly. But aside from skirting the up-front cost of building an online sales platform of its own–a cost guaranteed to pay for itself many times over, if online sales captures serious market share in the future–what incentive would a Pace-level gallery have to farm out their inventory to Amazon? Not only would it be a giant skid mark on the brand for all the reasons I outlined already, but it would also come at the cost of a sizable sales commission. No well-run gallery is going to sacrifice a percentage that meaty unless they believe consigning through the online middleman dramatically improves their odds of moving legitimate inventory. And it won’t, because the high and ultra-high net worth collectors in the market for elite artworks are not going to go shopping for them on the same site where their personal assistants shop for electric toothbrush heads.
It’s no surprise, then, that Amazon Art currently seems like more con than commerce. Average Is Over godfather Tyler Cowen ethered the venture shortly after it was announced last year by writing that “[Amazon Art] looks like dealers trying to unload unwanted, hard to sell inventory at sucker prices.” Which of course is the only thing that the incentives encourage elite gallerists to do there. Assuming they’re willing to go down the Amazon road at all, the sole move that makes any sense for them is to throw out a few smallpox blankets to see if anyone is naive, desperate, or dumb enough to buy into the trap. It’s the same “last resort” mentality that makes major galleries so reluctant to respond to customer inquiries on artnet or Artsy, only turned proactive instead of reactive.
As for the monthly fee cohort of online middlemen, sending a few hundred bucks a month to Artsy or artnet to list works won’t soil a blue chip gallery’s brand, but neither is it likely to trigger significant returns over the long term. Maybe a gallery moves a few minor pieces via third party platform that they wouldn’t have sold otherwise, and together those random sales net them a small profit above the monthly cost of doing business there. In that case, any economics professor in the world would give a thumbs up to the decision to spend the money.
But even that scenario makes partnering with a middleman an ancillary “Why not?” decision, not a viable overall strategy for a mega-gallery’s entire online sales division. It’s like a starving survivor chancing on a Fruit Roll-Up in a post-apocalyptic wasteland: she might as well take it, but it won’t solve the over-arching problem.
This is why I believe the better option for blue chip galleries is to form their own vertically integrated online sales platforms. Because of the incentives involved and the customer base they appeal to, online middlemen have the best chance of benefiting mid-tier and low-tier galleries–exactly the caliber of sellers I expect to fade out of the market in an era of robust online sales. The high end galleries will be much better served by building intelligent e-commerce within their own empires, so that they can ensure that these platforms satisfy the same branding demands and client demographic that makes their current brick and mortar operations profitable.
But how will such a branded e-commerce platform fit in with the rest of an elite gallery’s business model? And what will be the ripple effect on their physical strategy and programming? These are some of the questions I’ll explore next time.