The huddled masses could soon come knocking on the doors of the exclusive Sotheby’s. Last week, the prestigious auction house announced that it is forming an alliance with e-commerce giant eBay to make its fine art, antiques and other high-end goods accessible to the public. “Many today believe fine art is only for the elite, or that original works come with a million-dollar price tag,” eBay said in a blog. “EBay and Sotheby’s are looking to change that perception.”
The 270-year-old Sotheby’s is developing an online platform with eBay to offer mid-priced inventory on a dedicated site. The site will include live auctions and real-time bidding. While Sotheby’s already sells online, the alliance with eBay will help it reach the online retailer’s 145 million shoppers in 190 countries. In return, eBay gets access to more upscale goods and buyers.
The duo wants to grab a bigger slice of the burgeoning global art and antiques market. According to the TEFAF Art Market Report 2014, global sales of arts and antiques hit 47.4 billion euros or $65 billion last year, up 8% from 2012 and approaching the all-time record set in 2007. Online purchases made up 5% of last year’s sales and are expected to grow at least 25% annually.
But will buyers feel comfortable purchasing a Chagall along with shower curtains at the same website? The two partners come from vastly different worlds: Sotheby’s has auctioned such historic pieces as a Botticelli-illustrated edition of Dante’s Divine Comedy in 1884 and the Duchess of Windsor’s jewels a century later. England’s Duke of Devonshire sits on its board. EBay is known for selling used and off-season goods, although it has been trying to burnish its garage-sale image.
Can Sotheby’s upper-crust reputation remain unsullied by the union? “It’s a little bit of a delicate walk,” notes Barbara Kahn, Wharton marketing professor and director of the Jay H. Baker Retailing Center. “You can’t ignore the online market, but you do want to make sure that your branded experience is preserved.”
“You can’t ignore the online market, but you do want to make sure that your branded experience is preserved.” –Barbara Kahn
The timing seems right, Kahn adds. Buyers are becoming more comfortable with purchasing big-ticket items online. For instance, Sotheby’s handled the auction of John James Audubon’s “The Birds of America” drawings, which sold for $3.5 million earlier this year — an online record for the company. “It could work,” Kahn says.
A Third Try
Sotheby’s and eBay have gone down this path before. In 2002, Sotheby’s introduced its online auction into the eBay marketplace and enabled real-time bidding on traditional auctions in New York and London. But consumers were not drawn in, and the two firms ended the partnership after a year. At the time, Sotheby’s said it lost money on the venture.
Before eBay, Sotheby’s collaborated with Amazon.com in its first attempt to go online in 1999. But the Sotheby’s-Amazon alliance closed down after about one year. Sotheby’s said one mistake was keeping two auction sites instead providing a central place for transactions so buyers and sellers could meet more easily. Sotheby’s current CEO, William Ruprecht, presided over both of these deals.
Since then, Sotheby’s has managed its own online auctions. Its return to eBay comes after activist investor Dan Loeb’s hedge fund, Third Point, amassed a nearly 10% stake in the auction house in 2013 and launched a proxy fight in a bid to force changes at the company. Loeb took issue with Sotheby’s “chronically weak operating margins” and “deteriorating competitive position” compared to archrival Christie’s. He described Sotheby’s as an “Old Master painting in desperate need of restoration.”
Meanwhile, Sotheby’s adopted a poison pill defense to ward off a potential hostile takeover. Management said Loeb would be a “disruptive” presence on its board since he exhibited “erratic and aggressive behavior.” After the bitter fight, the two sides reached an agreement in May, with Loeb and two of his recommended directors joining the board. One of Loeb’s criticisms was Sotheby’s “inability to … develop a coherent plan for an Internet strategy, much less implement one.” The auction house seems to be fixing its digital strategy with eBay’s help, observers say.
While more details of the Sotheby’s-eBay alliance are yet to come, it appears that the venture will proceed cautiously. The two plan to live-stream New York auctions in 18 collecting categories on both of their websites. But high-value evening sales of Renoirs and other fine art and antiquities will be excluded.
Sotheby’s appears to be “rolling this [new strategy] out gradually, starting with those product categories that are in closer alignment with eBay’s current audience and then moving to more expensive items as the experiment succeeds — if it does,” says Wharton marketing professor Eric Bradlow. “This provides both parties a chance to test [the collaboration] out and to give the public an opportunity to get used to the idea.”
Sotheby’s has historically targeted the higher-end market of multi-million dollar deals. In 2012, it made art history with the record auction of Edvard Munch’s The Scream for $119.9 million – the most anyone had ever paid for a work of art. But while sales like Munch’s painting made headlines, more than half of Sotheby’s lots in 2013 actually came within the $5,000 to $100,000 range, according to the company.
The eBay venture will enable the auction house to sell more affordable items such as “grandma’s silver and china” to global buyers, according to a July 14 story in The New York Times. “The partnership allows for Sotheby’s to increase its product line and to dramatically increase its audience,” Bradlow notes. “This makes perfect sense, and as long as Sotheby’s moves gradually, I don’t see it as harming the brand in the short run.”
“Better to cannibalize your own brand than someone else coming and basically capturing your market.” –Jerry Wind
Moreover, the two joining forces could raise public interest in their art pieces, resulting in higher prices, according to Wharton marketing professor Pinar Yildirim. Not only would Sotheby’s and eBay benefit, but clients could cash in, too. For some people, “art is an investment,” she notes. As clients resell paintings and other art pieces, “I imagine their return on investment will go up if their items are [more widely] known.”
Down-market Efforts
Wharton marketing professor Jerry Wind thinks the Sotheby’s-eBay tie-up is “brilliant. Will it work? It depends on the strategy and the execution.” After all, the partnership failed before when both saw similar business opportunities. This time, he says, they should put together a better strategy and execution plan.
Wind suggests that Sotheby’s should start with a good understanding of the online market it wants to target and carefully choose the products it wants to auction, which it appears to be doing. Aside from fine art, Sotheby’s also offers a slew of high-end goods including jewelry, antiques, furniture, real estate and wine. Then, Sotheby’s should create and evaluate a number of options to attract new online buyers, including creating new brands, Wind says.
Consider American Express. The card company created different products under the same brand to target a variety of income groups, he points out. At the low end is the American Express “Serve” card — a prepaid account designed for people without bank accounts — and at the high end is the black American Express “Centurion” card, which is bestowed by invitation only. It carries a $7,500 initiation fee and $2,500 in annual membership dues.
Amex struck a partnership with Walmart to create its prepaid, no-fee Bluebird card. In April, Amex announced that the Serve card would be available in Walmart and that consumers could load cash for free at Walmart stores. “They are trying to reach the un-banked and going with a retailer that reaches [a lower economic group],” Wind says. Since Amex uses different products for various income groups, its image stays largely unscathed while its market expands, he adds.
The Marriott hotel chain follows a slightly different approach. Its portfolio of properties includes lodgings that do not carry its brand name. “They have a whole set of properties — all the way from the Ritz Carlton … to Courtyard by Marriott,” which is much more affordable, Wind notes. Sotheby’s can take the same route by creating a completely new brand for the eBay venture or by extending its name, such as “Art 2.0 by Sotheby’s,” he says.
What if new brands take customers away from established brands? Wind argues that cannibalization is healthy. “Better to cannibalize your own brand than someone else coming and basically capturing your market.” For example, Apple does a good job of cannibalizing its own products with every new version of the iPhone that improves upon earlier models. “If the iPhone hadn’t done it, someone else would have done it, and then Apple would have lost the market,” Wind notes.
Intel is another example of healthy cannibalization, because every new chip it introduces is better than older versions. “Some narrow-minded brand managers who are concerned about protecting the past are afraid of this,” Wind says. “But from a corporate, consumer and competitive point of view, cannibalization is very healthy.”
“It’s foolhardy to open the door to a competitor.” –Peter Fader
What Sotheby’s and eBay have to ensure is keeping the customer at the center of their efforts, Wind and other experts say. They should not merely focus on how they can benefit from their partnership. An example of a customer-centric company is bulk-goods retailer Costco. “Costco basically guarantees that every price you pay is no more than 15% over their cost,” Wind points out. “Consumers who are members of Costco have absolute trust and confidence that they are not going to be cheated.”
Transparency is especially critical in fine arts, he adds. “In the art market, there is huge uncertainty and concern about pricing. To what extent is the price right? Am I being cheated here? There is also a huge concern about authenticity, with all the discussion of fake art and forgeries.”
That is why Sotheby’s and eBay must make sure online buyers have all the information they need to make a confident purchase, according to Danielle Rahm, director of New York Fine Art Appraisers. Her perusal of Amazon’s art marketplace last year showed that key pieces of information were missing for some pieces that could greatly affect the price a buyer would pay.
Critical information needed by buyers include an art work’s “provenance,” or the trail of ownership that traces back to the artist or art dealer at the time the piece was created. Sellers also should provide a report about the condition of the art, the medium used and whether shippers specializing in art pieces will be hired. “The more information [sellers] provide, the more successful they will be,” Rahm says.
An Open Door
But Peter Fader, Wharton marketing professor and co-director of the Wharton Customer Analytics Initiative, believes Sotheby’s should not be entangled with eBay in the first place. He contends that the partnership is not good for Sotheby’s because it is helping eBay gain a foothold in its business. “It’s foolhardy to open the door to a competitor,” he says. “It’s not a good thing.”
In the long run, eBay’s online auctions will not be complementary to Sotheby’s business but rather will be direct substitutes, he notes. Sotheby’s should have continued to manage and invest in its own online platform – which is what Christie’s is doing. That means putting in the effort to master digital sales and protect its turf instead of “coming up with a thousand reasons to downplay it,” Fader says.
Fader sees similarities between the Sotheby’s-eBay venture to the alliance between Borders bookstores and Amazon in 2001. Borders’ own Internet sales were not doing well, so it partnered with Amazon to handle its online inventory, shipping and customer service. The bookstore lent its brand name to encourage sales. At the time, Borders believed its stores would not be in jeopardy because people wanted to browse and interact with other readers, he notes. Amazon was seen as an order-taker that did not understand the book community. Seven years later, the alliance folded, and Borders took back the online reins. But the chain soon went bust. “How many people actually miss the bookstore given how convenient and cheap it is to buy [books] online?” Fader asks.
Whether Sotheby’s will go the way of Borders is far from clear. But the auction house does have to convince some of its well-heeled clients to bid through eBay. “I can say this,” Rahm notes. “My [high-net-worth] clients will be surprised if they find themselves buying art on eBay.”
