Paddle8: Bringing the Art Auction House Online
Combining the ease and efficiency of e-commerce with the taste and trust of a traditional auction house.
Online auctions are nothing new. Since 1995 anonymous buyers have been able to outbid strangers for any item imaginable, right from the comfort of their couch. But the reach, convenience and cost-efficiencies of this model have only recently infiltrated the opaque and tradition-laden world of fine art.
Though Sotheby’s, Christie’s, Philips and Bonhams all allow customers to submit bids online, these industry incumbents merely added a new channel to existing – and increasingly dated – business models, to address existing – and increasingly aged – customers. It was this opportunity gap that drove the founders of online auction house Paddle8 to create “a destination that combined the ease and efficiency of e-commerce with the taste and trust of a traditional auction house.” The four founders brought together various backgrounds in art, luxury, tech and commerce (as well as two HBS degrees), and in 2011 launched a new type of online art business with a slick operating model to match.
More than just e-Bay for Art
Paddle8’s business model is relatively simple. Interested buyers sign up for membership online, browse through art by theme or artist or collector, enter their maximum bid and sit back and wait. If they win, next steps mirror any modern online check-out process, including payment, shipping and receipt.
For those consigning to sell art, the process is no more complex.Sellers photograph and submit their work, await the approval of Paddle8’s research specialists (less than 10% of submissions are accepted), monitor their work’s auction online and finally receive payment within 30 days. In fact, anyone anywhere in the world can submit a photo of a work via Paddle8’s app and receive a complementary auction estimate within five business days.
But a few key differences make Paddle8 unique within the realm of art e-commerce, mostly relating to pricing. Though the prices of art on Paddle8 are largely comparable to Artsy and other online alternatives (significantly lower on average than the big four), its fees are transparent and selling prices are never disclosed. These are two major departures from previous auction models. Traditional auction houses layer vendor’s commissions, buyer’s premiums and a number of other transaction-related fees atop the lot “price.” Many times these fees are not listed outside of contract fine print, and the major houses change them frequently and differently across sales and even individual lots. At Paddle8, the vendor’s commission is 8% and the buyer’s premium is 15%. Always. Not only is this clear and consistent, it’s also considerably lower than standard industry fees. Paddle8 also made the exceptional decision not to disclose selling prices, protecting buyers’ privacy and artists’ collection value.
Modern Operating Efficiency
There are a number of aspects of Paddle8’s operating model that enable its pricing structure, industry-beating fees and high consumer engagement. By removing many of the pain points of the traditional process of buying and selling at auction, streamlining shipping and insurance, and eliminating high costs like physical exhibitions and catalogues, Paddle8 is able to pass those savings back to buyers and sellers.
From a logistical standpoint, it’s notable that Paddle8 doesn’t collect or photograph the works themselves, negating the need for storage, pre-auction shipping or multi-month insurance. Like many non-art e-commerce sites, Paddle8’s inventory sits in its sellers’ homes until the company itself arranges for it to be shipped directly to the buyer. Paddle8 also holds themed auctions over the span of a week, taking a hint from fashion flash sale sites. In fact, its clean and simple web and mobile platforms resemble luxury apparel sites more than anything else. Handling this process from start to finish online also allows for easier collection and leveraging of vast amounts of data: buyer-, seller- and artist-specific.
Financing the Future
Just last month, Paddle8 closed another round of equity financing, bringing its total funding to $44 million. Its revenues for the first six months of 2015 totaled $25 million, and its year-on-year revenue growth is north of 140%, well ahead of its competition. Rather than trying to fit the traditional auction house into an online model, Paddle8 is building operations and technology that transforms the entire auction experience. It seems that already the strike of a gavel has become the click of a mouse.
Student comments on Paddle8: Bringing the Art Auction House Online
This is very cool. The business model makes a lot of sense as they’ve managed to pull a lot of the physical costs out of the operation. A big positive is that it lowers the barriers for people to buy and sell art, not only lowering the cost of the transaction, but likely facilitating transactions that would not otherwise occur. I wonder how crucial it is for an art buyer to be able to see a piece in person and if Paddle8 will come up with a creative way to address this need in the future. I imagine the 30-day payment window acts as an escrow system as well, similar to what we saw in the Alibaba case, to assure buyers that the seller won’t be paid until the piece is sent. For many online marketplaces, creating the symmetry of expectations and obligations between buyer and seller seems to be key to prolonged success.
Andrew, this is very interesting! I did not know about Paddle8, thanks for sharing! Your analysis shows that they have a smart business model and that they created a niche business filling the supply void of online auction companies. What intrigued me most about Paddle8 is their capability to inspect photographs and accept only 10% of the submissions. The authenticity of the accepted pieces is crucial in establishing company liability. I wonder if they are investing more heavily on their experts compared to other auction companies and if this is one of the ways they utilize the savings gained from eliminating the need for physical storage space.
This is really interesting. I was familiar with Paddle8 but did not know about their about their policy of not disclosing sale prices or that they verify works via uploaded photos. Although small relative to the major auction houses, Paddle8 has become somewhat dominant as an online platform for charity art auctions. Given the often limited audiences actively browsing these auctions, I imagine the lack of pricing disclosure was extremely helpful getting artists comfortable with having works listed on the site. I would be very curious to learn more about the photo validation process, how costly it is and if they have any automation tools that help expedite the process.