{"id":26915,"date":"2017-11-15T23:00:39","date_gmt":"2017-11-16T04:00:39","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/digitalizing-the-art-trade-sothebys-became-friends-with-ebay-but-can-it-warm-up-to-blockchain\/"},"modified":"2017-11-15T23:00:39","modified_gmt":"2017-11-16T04:00:39","slug":"digitalizing-the-art-trade-sothebys-became-friends-with-ebay-but-can-it-warm-up-to-blockchain","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/digitalizing-the-art-trade-sothebys-became-friends-with-ebay-but-can-it-warm-up-to-blockchain\/","title":{"rendered":"Digitalizing the art trade: Sotheby\u2019s became friends with eBay, but can it warm up to blockchain?"},"content":{"rendered":"

For nearly two and half centuries Sotheby\u2019s was able to preserve its position as one the world\u2019s preeminent gatekeepers of art without altering its operations. And so, the auction house\u2019s executives were daunted at first when asked to digitalize their organization.[1]<\/a> Nonetheless, in recent years, Sotheby\u2019s successfully embraced technology: from adopting information systems to moving its auctions to online marketplaces. In doing so, it has improved its services and significantly expanded the reach of its business. Nowadays, however, Sotheby\u2019s management is facing a new wave of digitalization: Blockchain technology is threatening to dramatically disrupt the $60 billion art market and to diminish Sotheby\u2019s role in the supply chain of art.<\/p>\n

\u00a0<\/strong><\/p>\n

New forms of digital disruption<\/em><\/strong><\/p>\n

In 2016, Sotheby\u2019s $4.2 billion auction sales resulted from three primary value add activities: (1) serving as an intermediary between sellers and buyers, (2) securing the transfer of art work, and (3) authenticating art and assessing its value.[2]<\/a> Blockchain mitigates much of the need for a middleman to fulfill each of these functions. Through blockchain, market players are now able to record bids and validate transactions. Start-ups, such as Maecenas, are looking to democratize access to art.[3]<\/a> By accepting cryptocurrencies they are reducing the high transaction costs associated with art trade and enabling investors who cannot afford multi-million-dollar artwork to acquire shares in a piece and collectively purchase it. Furthermore, blockchain promises to solve problems regarding the opaque money trail in the business. The authentication blockchain enables also introduces opportunities to trade forms of digital art, which were previously difficult to exchange due to the complexity of recording original ownership and preventing piracy.[4]<\/a><\/p>\n

The disruption, however, is expected to have some limits. Marcelo Garcia Casil, co-founder of Maecenas, admits that establishing the value and authenticity of a new piece of art will still require the expertise housed in organization\u2019s such as Sotheby\u2019s. But once a piece has been authenticated for the first time, since it will be recorded on the blockchain, there will no longer be the need to repeat this process each time the artwork changes ownership.<\/p>\n

 <\/p>\n

Sotheby\u2019s digital leadership (with limits)<\/em><\/strong><\/p>\n

Sotheby\u2019s has demonstrated awareness to many of these concerns, declaring \u201cembracing technology more effectively\u201d as its second key strategic priority.[5]<\/a> Indeed, in recent years, it has lived up to this promise. It first leveraged technology to systemize information about its global network of clients, enabling Sotheby\u2019s to provide clients with a consistent experience when they arrive at offices in different cities. In addition, the organization reproduced its extensive catalogues online. Most significantly, in 2014, Sotheby\u2019s partnered with eBay to live-steam its auctions.[6]<\/a> In doing so, it allowed small-scale collectors who were previously excluded from its auctions to participate in the process and it exposed millions of others to the Sotheby\u2019s brand. Since opening the platform on eBay, Sotheby\u2019s has continuously expanded its online offerings, creating functions on its website as well as mobile and Smart TV apps for online-only bids. The online sales of art have also enabled Sotheby\u2019s to supply relatively cheaper art, which it previously could not justify selling in its physical auctions due to the low profit margins. In 2016, online sales reached $155 million.[7]<\/a> Observing the profitability of this new business model \u2013 which no longer requires extensive production costs associated with traditional auctions \u2013 Sotheby\u2019s management has rapidly increased the number of online auctions. The market share of online sales is expected to continue to grow at a 25% rate over the next decade.[8]<\/a> In the long run, Sotheby\u2019s announced that it intends to leverage blockchain technology to preserve ownership over artwork; however, its management has also explicitly stated it has no plans to use cryptocurrencies.[9]<\/a><\/p>\n

 <\/p>\n

\"\"<\/a>
\n<\/a><\/p>\n

 <\/p>\n

A path forward<\/em><\/strong><\/p>\n

In order to preserve its leadership, Sotheby\u2019s should accelerate the adoption of blockchain as a means to record provenance of artwork and, in particular, leverage it to begin trading with digital art. At the same time, while it further expands its online presence and opens up to a new customer base it should not abandon two key aspects of its traditional operations. First, it should ensure it preserves its relationship with high-end clientele, which allow it to remain an authority in the legacy art space. Second, it should promote live online auctions that provide an experiential aspect of art purchasing. In doing so, beyond simply functioning as a distributor of art, it can differentiate itself from competitors that merely provide a more \u201cAmazon-type\u201d purchasing experience.<\/p>\n

 <\/p>\n

Open questions<\/em><\/strong><\/p>\n

    \n
  1. Will Sotheby\u2019s be forced to adopt cryptocurrencies in order to compete with other start-ups and small art galleries? Will doing so diminish its credibility among high-end clientele given some of the negative associations with cryptocurrencies?<\/li>\n
  2. To what extent will embracing blockchain to validate art ownership diminish the role of Sotheby\u2019s experts? How long will they remain relevant?<\/li>\n<\/ol>\n

     <\/p>\n

    (Word count: 781)<\/p>\n

    ———————————————<\/p>\n

    [1]<\/a> Conrad De Anelle, \u201cSotheby\u2019s and Christie\u2019s Adapt to Digital Age,\u201d New York Times<\/em>, March 11, 2016, https:\/\/www.nytimes.com\/2016\/03\/12\/arts\/international\/sothebys-and-christies-adapt-to-digital-age.html<\/p>\n

    [2]<\/a> 10k<\/p>\n

    [3]<\/a> James Titcomb, \u201cFancy buying shares in a masterpiece? This site will let you,\u201d The Telegraph<\/em>, May 20, 2017, http:\/\/www.telegraph.co.uk\/technology\/2017\/05\/20\/fancy-buying-shares-masterpiece-site-will-let\/<\/p>\n

    [4]<\/a> M. Philos Zeilinger, Technol, 2016, https:\/\/doi.org\/10.1007\/s13347-016-0243-1<\/p>\n

    [5]<\/a> Form 10-K Annual Report, p. 7, Sothbey\u2019s, Feburary 27, 2017, http:\/\/investor.shareholder.com\/bid\/secfiling.cfm?filingID=823094-17-9&CIK=823094<\/p>\n

    [6]<\/a> John Dizard, \u201cAuction houses embracing digital technology to sell to the new global rich,\u201d Financial Times, <\/em>September 18, 2014, https:\/\/www.ft.com\/content\/83b85b78-382c-11e4-a687-00144feabdc0<\/p>\n

    [7]<\/a> Form 10-K Annual Report, p. 8, Sothbey\u2019s, Feburary 27, 2017, http:\/\/investor.shareholder.com\/bid\/secfiling.cfm?filingID=823094-17-9&CIK=823094<\/p>\n

    [8]<\/a> Conrad De Anelle, \u201cSotheby\u2019s and Christie\u2019s Adapt to Digital Age,\u201d New York Times<\/em>, March 11, 2016, https:\/\/www.nytimes.com\/2016\/03\/12\/arts\/international\/sothebys-and-christies-adapt-to-digital-age.html<\/p>\n

    [9]<\/a> Matthew Wall, \u201cHow Bitcoin is infiltrating the $60bn global art market,\u201d BBC<\/em>, July 25, 2017, http:\/\/www.bbc.com\/news\/business-40703182<\/p>\n

    Photo source:\u00a0\u00a0https:\/\/btcmanager.com\/how-the-blockchain-could-change-the-art-market\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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