Op-Ed: Dear Bill, Five things for Sotheby’s to remember when responding to Loeb/Third Point

DearBill

I hope you don’t mind the informality – not to mention my writing to you via the internet. It seems to be all the rage these days! The online art world has been abuzz since Mr Loeb delivered his latest epistle, dated 2 October, setting out his opinions about Sotheby’s need to “develop a coherent plan for an internet sales strategy” among other things.

Incidentally, I’m sure you know you shouldn’t feel special in receiving Mr Loeb’s letter; it was only a matter of time. He has form, as evidenced in a 2005 New Yorker article, The Angry Investor, from the amusingly-titled ‘Department of Noisemaking,’ or Wikipedia’s bibliography of his previous  correspondence.

Anyway, enough digression. (Unlike, I have to say, Mr Loeb, whose letter reads like it was – to put it charitably – written late at night – although to a well-worn Loeb formula.) So, put down that organic delicacy and read on. Here are five more pieces of unsolicited advice for you to chew over now that a digital sales strategy has rocketed to the top of your agenda.

1. Don’t panic

It’s easy in technology to act in haste and repent at leisure. Focus on your business strategies and then identify the digital services and strategies that deliver them, not vice versa. There are very few instances where the reverse is justified. Just don’t become the art world equivalent of the Twitter enabled fridge, doing something digital just because you can.

However…

2. Don’t be complacent

Keep in mind some advice given by a far-sighted man called Roy Amara in the 1970s. Twenty years before the Web as we know it, in what’s now known as Amara’s Law, he wrote:

“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”

The adoption of technology in markets follows two broad phases. The first where processes that already exist in the offline world  are digitized and moved online (think email replacing letter writing – at least for everyone apart from Mr Loeb.)

The second is more interesting: new things which may have been impossible or uneconomic in an offline business model become possible (say, social networking). So don’t be complacent about the transformations that digital technologies are bringing to the art market. But don’t be too short termist.

Which brings me to…

3. Understand the Hype Cycle

Sotheby’s may have jumped a little too quickly in 2002 with your subsequently canned eBay experiment. That did prove Sotheby’s willingness to innovate, whatever Loeb thinks. Being able to ‘fail quickly and easily’ and to learn from mistakes is part of the experimental, innovation-centered culture which developing successful digital businesses requires.

In this regard, an often-quoted model among digital technologists is the Hype Cycle, developed by consulting firm Gartner.

Gartner_Hype_Cycle

Figure 1: Illustration of the Gartner Hype Cycle. [Attribution: Jeremykemp at en.wikipedia]

Technologists like new technologies. It’s what they do. They talk them up. They tell you they’ll transform your business. And then, often, they don’t. It’s disillusioning. Digital projects are cancelled, never to return: “We tried that before, it didn’t work.” But then something interesting happens: Some technologies survive and mature. They improve through multiple generations. They’re adopted more widely, and then become mainstream and productive for the majority of companies adopting them.

Let’s say 3D printing is at the peak of inflated expectations now (we’re looking at you Van Gogh museum). Or maybe a better example is  your initial foray into online sales with eBay. It didn’t work at the time. In the Trough of Disillusionment, Sotheby’s cancelled it. Now as Mr Loeb points out, online sales platforms are maturing rapidly and promising to transform the market (or, more accurately, sectors of the market.)

It may have taken ten years, but later entrants to online sales such as Christie’s, Phillips and Saatchi Online are now benefitting from better technology than in 2002 (web development frameworks, internet enabled mobile devices, e-commerce, universal WiFi, high bandwidth, etc.) and a bigger, global pool of online art collectors. Those companies are just starting to pull ahead in online art sales, particularly in contemporary and digital art.

It’s the right time for Sotheby’s to do something (again) in online sales. Because the technology and online market is mature, any lost ground can be made up very quickly, particularly if you…

4. Partner and acquire

You don’t need to do this digital stuff all on your own. Even tech companies don’t do it on their own. Take a leaf out of Google’s book and use your cash to acquire or partner with companies who have the digital services ready to go.  One thing that Sotheby’s doesn’t appear to be short of is cash which flows through your sales rooms in quantities which digital startups can only dream of. The number of startups in art market technology is increasing sharply. You can let these startups make mistakes and then pick up the ones that succeed and fit your business strategy. (You could take a look through our growing Directory of art market technology companies.) It may sound simplistic. It’s certainly simple – when you can afford it.

5. Understand and protect your brand

Finally, Mr Loeb seems to recommend that Sotheby’s adopt an online sales strategy to chase the lower value end of the art market in order to fund protection of your position at the top:

Sotheby’s current “strategy” is puzzling. The Company has stated that it intends to focus on “top clients” and high value lots, and shun the lower value lots that your top competitor has effectively captured by leveraging new technologies. Despite this “focus”, Sotheby’s market share relative to Christie’s in items over $1 million actually trails its overall market share. Strategically, we cannot help but ask if ceding the market for lower value lots to your key rival has allowed them to generate profits and relationships with emerging collectors which they are using to compete against you at the top of the market.

I would think long and hard about this. In the longer term, it’s possible he’s wrong. Online sales platforms do make a global, high volume, low price strategy attractive (see Amazon Art). This appears to be a prime example of technology driving business strategy. Mr Loeb may simply be focussing on returns for his hedge fund. You need to think about the Sotheby’s brand that has almost 300 years’ equity behind it. Of course that doesn’t necessarily guarantee survival in the future (don’t be complacent). But it’s easy to dilute or diminish a brand synonymous with quality. And once that happens, it’s virtually impossible to recover.

Interbrand  has identified luxury brands which have devalued by diversifying and expanding as ‘lifestyle’ brands. Sotheby’s is at the top of the pyramid, along with Christie’s. Digital can allow you to move down that pyramid but only through clearly, separately branded online sales channels. Mr Loeb seems to believe Christie’s can do that without clear high end/low end brand separation. That, I think, would be a miracle.

Let’s leave it there. Thanks for your attention. I realize you’re busy and hear you have poison pills to hand out. Compared to some industries, Sotheby’s is in an enviable position (at least you’re not in newspapers or publishing). The effort to get an effective digital strategy under way is relatively minimal compared to building the position in the market which you currently have. Of course that could conceivably be under threat or weakened by more agile, digital-savvy competitors, as Mr Loeb believes. But bear in mind the above, get your digital strategy right, and you’ll more than have earned your next farm-to-table meal.

good-luck

One comment

  1. Pingback: Sotheby’s – ‘Business as usual’ in Hong Kong | Art Market Technology

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