9/22/2014

Auction Houses and Digital Technology


The Financial Times recently published an interesting article on auction houses and how they are using digital technology to increase sales and reach collectors. Online auctions have been around for some time now, but the technological reach is now far beyond a sales platform and includes items such as full access to catalog information for collectors as well as client information and buying habits being available to auction house staff.

What I found interesting is the renewed interest in lower valued items, cutting costs and being able to sell lower valued items, and to also get those items in front of a specialist in the event there is something which might be special.

The Financial Times reports
It took Joseph Duveen and the lesser art dealers of the late 19th and early 20th centuries a good 50 years to give the American rich at least the appearance of civilised gentry. Now the international auction houses are trying to do the same for the new class of global rich in a fraction of the time.

The challenges of meeting the demands of this new generation of digitally native wealthy have seen auctioneers transform themselves into digital information managers. Yet for many long-serving staff this has been painful. Four or five years ago, if you asked people at the higher levels of Christie’s or Sotheby’s how they organised their data, you would be told condescendingly how this was a high-touch, not a high-tech, business.

That is over. Duveen was able to create and control the transatlantic market in art for the wealthy by managing a personal network of paid-for art scholars as well as informers among servants. That, however, was relatively easy. Rich Americans had already accepted English, French and Italian aristocratic country houses as the measure of cultured legitimacy. Anyone who wanted anything avant garde could find it in Paris, point final.

Today, though, the newer global rich of hedge fund managers, oligarchs and tech billionaires are not so swayed by the aristocratic version of art collecting. Only about a 10th of the auction houses’ turnover is in the Old Master paintings that gave Duveen the means to buy a peerage. The headlined billion-dollar auctions are for postwar and contemporary art, whose artists might live in London, Los Angeles, Berlin, Johannesburg or Shanghai. The nature of the clientele itself is changing: more than one in four of the top lots in this spring’s evening sales were bought by new customers.

The auction houses have been under pressure to adapt to this changing universe. While the most visible aspect of the houses’ digital revolution may be their online auctions, the most essential is in the systematising and networking of their customer, market and lot information. Without that, the auctioneers would lose control of their ability to charge gross margins in the mid-teens as intermediaries of the $30bn global art auction market.

Within the quasi-duopoly of Christie’s and Sotheby’s at the top of the auction world, Christie’s has now moved to implement what it calls its “digital strategy”. In 2010, Fran├žois Pinault’s Artemis, the holding company for Christie’s, brought in Steven Murphy, an American former publishing and music executive, as chief executive to effect the transformation. Murphy is less of a technologist himself than an evangelist for technology among creative staff.

At first, he stepped gingerly through the minefields of the art auction world, bringing with him outsiders recruited from the publishing and music industries as well as consulting and investment banking. He realised Christie’s had fallen behind its customers’ technical abilities. “Any good or valid strategy must be driven by the customers,” he says. “Anything that is just internally focused or conjecture must fail. We did research that showed our customers were living half their life, if not more, with online experiences. Even our multi-billionaire clients who were highly interested in art and objects were personally going online to study them. The imperative was clear: we needed to create a digital version of the Christie’s experience in a platform-agnostic way.” That means that whether the customer was using an iPhone in an airport, or sitting before a wall-sized screen connected to a secure corporate network, they needed the full range of information the auctioneers could provide.

Joseph Duveen could keep a jumble of painting provenances and family gossip in his head, and had the nerve to bluff his way through what he did not know. That does not work so well any more. The average Christie’s client has five devices with a variety of search engines and social apps.

Christie’s now has James Map (as in founder James Christie), a sort of private internal social network that allows specialists, client service staff, support staff and executives to see what is known about a client and his tastes. Past auction records, relatives’ purchases and sales, statistical inferences on how likely clients are to move from buying an expensive watch online to participating in a high-end evening sale – it all can be in the mix.

The idea, Murphy explains, was “to create an internal app that spiders into our database of information and brings up on our internal [screen] environment lots of connectivity. This is faster and better than the email chains [that it replaced].”

Systematising information about clients and their tastes was not just about stopwatch efficiency. Auction houses had been managed as alliances of barons and baronesses who had their own fiefdoms of collectors, consignors and experts. They tended to share information with their notional masters in the C-suites of London, New York, Paris and Hong Kong only selectively and on their own terms. If they thought they could do better, the specialists or experts would leave for the rival camp or set up as private dealers with a Rolodex gleaned from Christie’s or Sotheby’s extensive files.

This is not to say the staff can simply be replaced by an algorithm. “This is about art, and therefore purely algorithmic information technology endeavours don’t work. They are important to our equation, but that equation must include the human factor,” Murphy says.

The old-guard auction house staff, though, at times had a provincial manner that could be a barrier to attracting new participants to the art market. “Some years ago, you could be a New York client who bought a lot, and then you would walk into [Christie’s in] Paris and they wouldn’t know who you were, and you had to start over,” says Ken Citron, Christie’s head of IT. “We are a global company now, with global clients. Our having technology allows them to have a consistent experience across the world.”

The auctioneers have not yet gone quite as far as Las Vegas casinos, which use facial recognition to see when big players enter the house. “There is a line to be drawn there; it can be kind of creepy,” says Citron.

The digital strategy is also making it easier to take part in auctions. Even with all the unseen know-your-customer checks now required by financial supervisory agencies, it has become much faster and easier to register as an auction house client. About half now do so online.

But while the online revolution may have left some auction houses behind, for others it is generating new business. Auction houses used to regard the sale of smaller, cheaper objects from, for example, estate liquidations as an annoying loss-leader business that just wasted their specialists’ time. Now, however, many are making money selling objects for $2,000-$3,000; it’s just a matter of cutting transaction costs. “We have a new app with which you can take a picture, push a button, and it goes to a specialist, with a description. Then the specialist can decide if it might fit into an auction,” says Citron.

There is some room for debate about how much of this sort of work needs to be done internally at the auction houses, and how much should be done with more experienced online partners. This summer, Sotheby’s announced a partnership with eBay, the online auction giant. While the details of the partnership are still being developed, it is understood eBay will distribute live Sotheby’s auctions to its global audience of 150m buyers.

Those glittering evening sales in the capital cities will not be found on the jointly managed art and collectibles site. Sotheby’s has never been comfortable using its brand to sell relatively cheap stuff – it is hard to maintain a high-end image while selling lower-priced lines. And concentrating on larger, more expensive works of art provides the auctioneer with high margins in hot markets.

“This is a partnership in which [eBay] brings traffic to our auctions through its access and marketing skills,” says Bruno Vinciguerra, Sotheby’s chief operating officer. “We are going to define and develop with it the content of our site, and learn from its fantastic abilities and knowledge.”

From a competitive point of view, getting instant access to 150m customers sounds attractive. And buying, rather than building, can be the more rational choice in adopting new technology.

Murphy, though, says: “We decided years ago the way to serve the customer best, and to stop being disintermediated, was to pull off the trick of being an innovator ourselves. You can’t put digital off on the side into a different building. Anyone who does that regrets it.”
Source: The Financial Times

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