• Logistics and storage. Artsy has never taken the delivery and storage of pieces of art purchased through the platform seriously. Although one could hear from the company officials that the development of such a service would simplify purchasing by making it more convenient.
• Private market sales index. By starting with private sales, Artsy could potentially provide badly needed data — private sales statistics. This would cover the non-transparent part of the market, which during the 2010s accounted for 52–58% of the art market sales. Either the galleries were not ready to disclose the information (and Artsy did not insist, risking to lose the main channel of income through subscriptions), or Artsy did not have time to make a corresponding product.
• Purchase of third party technologies. Apart from investing in ArtAdvisor, Artsy has never bought any other startups in the Art+Tech industry. With confidence in its team and skills, the company relied more on team brainstorming than on the experience and mistakes of other startups. With the money Artsy raised, it was possible to invest or fully buy out the most promising early stage startups, concentrating them under one umbrella brand. This would save your own time and money to study what has already been researched, and also makes it possible to get mini-teams of hardy young professionals.
• Online education system of its own. Yes, Artsy has very strong, sometimes innovating editorial content. But opening up a special course for young collectors seems like a natural development of the platform: if Artsy states in the media that looking for young collectors is a priority - why not grow them yourself?
• Consulting services for the appraising, insuring, and depositing pieces of art. At least this could be a good source of income in partnership with third party companies.
• Application of its own (or offline service) for managing collections. If you are in private sales, want to retain your audience, establish long-term relationships and have ambitions to reach the entire market sooner or later, you must form a collection management application. At least such a step would have been natural, but it was not made.
• Using blockchain technology. While Artsy CTO Daniel Doubrovkine regularly (and very positively and powerfully) spoke at international conferences related to the adaptation of blockchain for the needs of art in 2017-2019, the company itself was in no hurry to introduce that technology. And it is still in no hurry.
• Implementation of an NFT marketplace. Artnet has already done that on their platform. Some of Artsy's galleries are trying to sell NFTs — though in the 'contact the seller' mode. Shall the real digital marketplace been released by Artsy?
For nine years, former COO Sebastian Cwilich made many key decisions that turned Artsy into the world's largest online art selling platform. These include subscribing to galleries instead of receiving commission on sales, partnerships with art fairs, and investing in an auction bidding platform that allows users to bid remotely. In the press release on leaving his post, Cwilich said that "he was leaving at the peak of brand development." “The art industry was one of the last to massively move to online deals, and the process has accelerated incredibly over the past 24 months. This has given me confidence that I can leave the post <with a clear conscience>, "he added in the summer of 2019.
The same press release cited promising figures: “The number of buyers on Artsy exceeded 1.3 million in 2018 (an increase of 40% compared to 2017), the partner base of galleries exceeded 3 thousand (an increase of 35%), sales through the platform increased by 58%." Why did Artsy show dynamics only over the previous year and not the entire period of work? Perhaps because the last investment round for Artsy took place in 2017 and the release was intended to remind investors of the correct strategy adopted since then. Although did these figures really make investors happy? Back in 2016, Sebastian Cwilich pointed out that “Artsy was close to reaching operating profit” (in other words, based on the results of a single year, excluding the arrears of the past periods and investments). But what if we tryto calculate the final profit of the project? As we know, this is the difference between the proceeds from the sale of the released product and the costs of its production, including investments. In a year, in 2018, Sebastian would receive another US$50 million in investment, efficiently doubling the costs that Artsy had to return. In other words, reaching the breakeven point of the project has considerablymoved away in time.
“Last week I spoke to a hedge fund manager," Sebastian Cwilich said in one of the last interviews as President and Director General of Artsy, — “I asked him, if you would have to buy the shares of the company today, in our world of rapidly changing technologies and stay afloat for 50 years — what would you buy? And he quickly replied: it would be Amazon, but not Facebook." Since Artsy has been consistently identified with Amazon in the media, comparing their models seems reasonable. For instance, the Professional tariff plan on Amazon is available for a monthly subscription of US$39.99, plus 6% to 25% of sales commission for each item (13% average). Amazon has 2.5 million active sellers with items to sell — that is US$1.2 billion in revenue from subscription only! Logistics and return policy of Amazon are clearly defined. Artsy charges its subscribers from US$425 to US$1000 per month. Approximately 3 thousand galleries pay an average of US$700 in each of 12 months — we have US$2.52 million a year. We should stress that it happens without a clear return policy and unified logistics under the control of the platform, as well as without sales commission. With 200 employees, that means up to US$126,000 per Artsy employee per year. But do not forget about taxes, fixed and current expenses, development expenses, etc.
It can be assumed that Artsy plans to sell subscriptions to all solvent 7,500 galleries around the world (the number of less active galleries was about 16,000, and all business entities calling themselves galleries, including shell companies, was about 150 thousand in the world early in 2020). But would it be real? It is not in vain that the Artfacts database mentions 7.5 thousand - these are the galleries that have been presented at least at one art fair during the last few years. And art fairs, according to reports from Art Basel & UBS, were the main sales channel at the private market, generating up to 46% of revenues. Did only 7,500 galleries out of 150,000 understand the trend? There is another reason: the rest of the galleries did not have money to participate in art fairs. Would they instead spend an average of US$8,000 a year to subscribe to an online resource (given that online sales accounted for 29% of gallery sales on average)? This is a question, but the most obvious answer is no. Moreover, the number of new galleries established in 2019 was 86% less than in 2008, according to the same Art Basel & UBS report. The ratio of open to closed galleries was 0.9 to 1, which is a negative balance. Hence, the most optimistic prospective number of Artsy subscribers was between 6,000 and 10,000.
Thus, compared to other companies, Artsy is not Amazon. Rather, it looks more like Facebook — with huge customer potential and fast-growing market capitalization, but at the same time with the current inability to monetize these human assets (Facebook ad revenues do not even come close to covering its expenditures, let alone investments). And Sebastian Cwilich should have known well why Amazon was beating Facebook, while speaking to an unknown hedge fund manager. Maybe that was why he decided to leave.
Why did Larry Gagosian hire Sebastian Cwilich as a technology consultant? The answer can be found in a conversation of the first Artsy patron Wendy Murdoch with Town & Country magazine: "Even when I called Larry <in 2010> to support the young <Artsy> project, he tried to sell me art!" All Gagosian is in this conversation: even giving something, he would never miss an opportunity to sell. Entering the project as a venture investor and continuing to invest personal funds in the next rounds, the art dealer has always thought about the benefits for his gallery. Perhaps Sebastian's invitation is the best dividend from participation in Artsy for Gagosian.
Prior to Artsy, Sebastian had an auction experience (see: public market collectors database), then he supplemented it with skills in online sales. After working with online collectors for 9 years, Cwilich also realized which of them was ready to move from “accessible art” to the blue-chip category, and which was held back by Artsy resources. In addition, even after leaving the project, he remains the second main physical person interested in Artsy (as a shareholder), so he would be able to tell when Gagosian should leave the project and sell his share. Finally, Sebastian is a person who, like a gold digger, knows where the main deposits of unused money are at the art market. “Today, 98% of the world's millionaires don’t collect art,” Cwilich said in an interview. — "I believe that the art market has the opportunity to <increase sales> at least 10 times." Larry Gagosian was well aware of those figures and thought similarly. But he also realized that with Artsy, Sebastian would not be able to attract 98% of wealthy people to the art world soon, but with Gagosian, the "Amazon" of the art market, this can happen much faster. By the way, until the summer of 2019, according to Crunchbase, Gagosian Gallery had used only 7 technologies in its work — with the arrival of Cwilich, it uses more than 30 technological solutions. In particular, therefore, it was Gagosian who was the most prepared for the unexpected COVID-19 pandemic.
(UPD: according to our information in 2021 Sebastian left Gagosian starting a new company in the cultural / educational sphere using hybrid human-AI technology)
What about Artsy new CEO, you would ask? Mike Steib, who was called to replace Sebastian Cwilich, had had no experience in art until 2019 (perhaps that was the criterion for the selection of the candidate?). He headed a successful online service for organizing weddings, worked on marketing projects for Google and consulting for McKinsey & Company. His audio interview for ArtTactic with Artsy quarantine statement showed that he was quite confident in the art market. In particular, Mike named three positive positions from which the quarantine regime could be considered:
• Galleries have not only moved to the online art trade — they have become more open in terms of publishing prices (previously, instead of a price, there was a "request-the-price" button);
• Increased number of “non-random” visitors to Artsy: the number of users who went to contact galleries after viewing the offered art increased by 50% (in professional language — conversion of a stream into a potential buyer);
• Overall, Artsy has seen a 300% increase in the number of transactions since March 2020 (this means that after the first contact with the gallery, the latter found more convincing arguments for acquiring art than before).
During 2020-2021 Artsy worked to support existing clients and partners, primarily art fairs, by providing them with the opportunity to display exhibits virtually, according to Steib. At the same time, art fair galleries received 10 times more requests through Artsy than in previous years of "physical" work. The charity auctions helped revitalize the platform audience and attracted their attention to commercial galleries and individual artists at the close of the auction. The number of requests from galleries wishing to become subscribers and owners of a virtual office has doubled. Today, when galleries unite on platforms, Artsy has offered them a new format fighting for the attention of collectors — a single showroom (despite the actual launch in June 2020, information about this project cannot be found on the site: all links lead to an individual request). Finally, Artsy is set to return to developing a service for centralized payments through the platform, after seeing the rise of activeness of collectors with partial transparency in pricing.
“If you have 20 artworks and put them to an online gallery next to the buy button, your business model won’t change,” says Mike Steib. “To be a successful art seller, you need other tools. In particular, today it is curatorial support and uniting collectors by class and taste." Thus, today Artsy is gradually returning to the original idea of its founders, one of whom (Cleveland) saw the future of the project in the development of taste through a game format, and the other (Cwilich) — in creating tools that save collectors time and money. The 2020 pandemic gave Artsy two trumps at once: first, it combined art and play into one business format (in fact, reconciling the polar opinions of the founders), and second, it temporarily eased the pressure of investors that slowed down the development of the platform, protecting it from many bold decisions.
Artsy has received a respite. It remains to utilize it correctly. Let us follow it and worry together.