Jacob Pabst on Disrupting Art Auctions

Originally Published on The Last Magazine on March 5, 2015.

Jacob Pabst on Disrupting Art Auctions

Buying art online has suddenly become ubiquitous. The new platforms are throwing parties in Miami, partnering with museums to organize their gala auctions, or providing media partnerships, but this relatively new sector is still trying to understand if they should disrupt a market or willingly dangle itself to be co-opted by the major old-school auction houses.
Artnet has been the quiet leader, as well as an anomaly, of the pack. It’s ancient—twenty-five years old—and is a publicly held company with offices in New York, Berlin, London, and Beijing. In the late Eighties, feeling threatened by artnet’s pursuit to make information transparent to the market, a number of auction houses unsuccessfully tried to sue the young company. It struggled for years as auctioneers and major galleries were uncooperative, but its perseverance to make access to data easy and to democratize the transaction of purchasing art has come full circle. Today, the same auction houses and galleries are all artnet clients.

Several years ago, Jacob Pabst took on the artnet reins after spending a decade developing products and technology. The transition was shaky (he avoided a hostile takeover in his first months as CEO) and he had a lot to prove (his father started the company).
In his first extended interview, Pabst discusses the business of the online art market with Karen Wong.

The global art market has often been criticized as a sector that is unregulated and lacking oversight. What role has artnet played in this saga?

Our data shows that the fine arts auctions market hit the $16 billion mark again last year. The sums at stake have become so significant. And yes, there are legitimate concerns about the lack of regulation ranging from tax avoidance to price manipulations, or even money laundering. That’s why our Price Database continues to play such a central role in the market. A market can only grow if it’s transparent, if there’s enough information available. In the past, the lack of objective price information was a stumbling block, for buyers in particular. The data they needed to make informed decisions was fragmented and they had to cobble it together from various sources in different countries. The artnet Price Database changed all that: it provided the market with a global standard of price comparison.

Silicon Valley’s mantra is ‘knowledge is power, data is money.’ The Price Database remains the engine of artnet. What is it exactly?

We have a large team, based here in New York, of multilingual art historians collecting the data, aggregating, editing, and translating it. Our data goes back to the Eighties, long before the Internet became status quo. Over the years, as the technology has become more sophisticated we have built a number of products on top of our data. For example, the Market Alert provides an update when your favorite artist has a new auction result or a work is up for sale. Another tool is artnet Analytics, which crunches the data into charts and graphs so you can compare artists’ auction results and look at the performance of a certain group of works from one artist or a certain group of artists.

Let’s go back in time—was there a defining moment in the twenty-five-year history of artnet when you knew selling artwork online was going to work?

I always believed that selling art online would work—eventually. Just about every market has been disrupted or sometimes completely reinvented by the widespread adoption of the Internet as a way to make businesses and markets more productive, and we always thought that the art market would sooner or later go through the same transition.

Do you intend to supplant or augment the network of galleries and auction houses?

The art market is highly inefficient. Where else do you have transaction costs of around forty percent? Where else does it take between three to six months to sell something? Twenty years ago, we launched the Gallery Network, a platform for galleries to present themselves online to a global audience, our first drive to bring the buying and selling of art online. In 2008, we launched our online auctions platform. With lower transaction costs and faster turnarounds, we knew we had a winning proposition, especially since most buyers at live auctions are not even present during the auction nowadays: they buy via telephone or send someone to bid for them, so buying online is the natural next step. The pace of change has been quite dramatic. As recently as two years ago, it still felt special when we would sell a painting for over $100,000, yet last year we sold several lots in the $300,000 price range. The total realized price for lots above $10,000 increased more than thirty percent.

There are many new players selling artwork online (artsy, Paddle No.8, artspace, auctionata). What distinguishes artnet and the way you conduct transactions?

What makes artnet unique is our legacy and the combination of our channels: the Price Database, the Gallery Network, our online auctions platform, and, most recently, our news platform. We’ve created a single destination and each business segment reinforces the others. It happens either organically, as collectors who read the news visit our auctions, or proactively, as is the case when we present information from the Price Database next to each auction lots so buyers feel well informed. The platforms you’ve mentioned are great for the ecosystem and proof that the track record we’ve established over the last two decades is critical to this sector.

When you were tapped in 2012 to take the helm of artnet, you made an unpopular decision to close down artnet’s magazine, whose quirky editor-in-chief, Walter Robinson, was very well respected. New York Magazine’s art critic Jerry Saltz wrote a loving obituary on Robinson and his leadership. You cited that the online magazine was a longtime money loser, but a year later you launched Artnet News, which now employs fifteen full-time writers and attracts over one million visitors per month. What are you doing differently, and is the news channel a profit center or loss leader?

Closing the magazine was really difficult. I’m proud of its pioneering history and the respect that so many people had for it, and for Walter in particular. But online publishing has radically changed over the years. The way people read and consume news now is vastly different and I felt that change was needed. The artnet magazine produced smart, witty art criticism averaging five articles a week. Artnet News is a newswire. It’s 24/7, dedicated to the global art market. We balance daily art world news and expert commentary. We’ve got an awesome editorial team of expert writers and editors based around the world and we publish around twenty-five to thirty articles a day and have ten million page views a month. I anticipate the news channel to break even as early as this year, its second year of existence, which is an exciting result.

You recently announced that artnet would have a major presence in China. What have you learned regarding the Asian economy and buying power from the fashion industry, which was the first to exploit these markets?

China’s art market is fascinating. It’s second to the United States in terms of market share and it continues to grow. Chinese consumers value strong, global brands, which made it much easier for the fashion industry to enter the market. The same is true for us. Artnet is already well known and respected in China. And even though most revenue for the big fashion houses probably doesn’t come from their stores within China because of the heavy import duties, it is still important from a branding point of view to be present in the country, and then you are ready once the market opens up more and more.

Are you banking on a Communist country which you hope will continue to aggressively produce millionaires who are ready to buy art online?

I am confident that we have the expertise and the assets to eventually be successful in China. Concurrently, their regulatory framework will become more open to global companies. But it won’t happen over night. It will probably be a few years before China generates more revenue for us than the UK or Germany.

How diverse are artnet buyers?

Sixty percent of our buyers are based in the US, the rest come from another 124 countries, including far-flung locales like Bulgaria or Mongolia.
There are plenty of naysayers who believe that buying art online has a glass ceiling and it’s unlikely that a site will sell art for six figures with any regularity.

Is that the case?

If you had asked the same people that same question a few years ago, they probably would have told you that you couldn’t sell online with any regularity art for five figures! Last year, our auctions team sold many lots in the six figures, and the average sold lot value at our auctions soared by 37%. We expect the trend will continue, as collectors realize the advantages of online auctions—the low transaction costs, the greater liquidity (with more works accessible to more buyers), the fast turnaround, and the lack of seasonality (in contrast with the traditional calendar of brick-and-mortar auction houses).

What is the most expensive artwork artnet has sold online?

It’s a painting by Andy Warhol: Flowers, which we sold on July 20, 2011, for $1,322,500 (with premium).

If we compared the art market to the fashion industry, then the major auction weeks in NYC and London could be likened to the haute couture shows. The multiple fairs of Basel, Frieze, etc., feel on par with Spring and Fall fashion weeks. Selling art online could be characterized as another layer below the juggernaut of auction houses and galleries, providing a similar, less expensive experience—and so it makes me think artnet is like Zara or Topshop. Is that a fair assessment? How would you characterize artnet and the other players in your space in the global art market?

I think of it differently: as an alternative distribution channel, rather than as an alternative product. Average estimates for online sales are not yet in the same league as the big auctions held at the top auction houses, but we are only at the beginning.  The competitive advantages of online will eventually prove irresistible to most collectors and replace much of the business done through the traditional channels. Not everything can sell online of course, but works by known artists do already at all price points, and we will see average prices going up more and more in the future.

How quickly is the online art market growing?

Thanks to a combination of technology, trust, and lower transaction costs, the online art market is estimated to be growing at a healthy rate of twenty percent a year. We are reaching a tipping point, a virtuous cycle where the quality of the inventory draws more buyers into the digital marketplace, which in turn attracts more sellers, and so on. We see more buyers online, buying more artworks, at higher price points. Galleries and auction houses all have to adapt their business model to remain competitive and capitalize on this shift.