Online Art Market and the big picture in 2018: Growth, Problems and Future Prospects

Enigma shrouds the online art market, as growth slows and the much-anticipated consolidation of an over-crowded market is still elusive. The Hiscox Online Art Trade Report 2018 indicates over 81% of the platforms expect a whole lot more.

The question is, what will revive this industry?

Given the lack of transparency and pricing, money is at the root of the reason why the online art market is still evolving. With auction houses publishing the best price first, the biggest concern is whether this is just too much to ask for, given the challenges faced by online shopping in general.

Can Blockchain Move the Roadblocks?

Over the span of 2017–2018, the blockchain blitzkrieg took over the world of art. In April 2017, Crypto Art Gallery launched an event for cryptocurrency and blockchain-based artworks. A month later, the first British gallery Dadiani Gallery accepted cryptocurrencies as a payment mode.

At the start of 2018, the first Rare Digital Art Festival in NY focused on creative technology, the blockchain, cryptocurrencies in art and digital art. The same month, a blockchain-based decentralised title registry for Art and Collectibles called Codex was launched. Pantera Capital, a hedge fund specialising in blockchain, invested USD 5 million in Codex. Although Codex has gone on to partner the first blockchain platform across the globe for investing in fine arts, Maecenas, and created a successful registry, no one has yet created an online marketplace via blockchain to provide provenance.

The Numbers Game: Tracing Growth

Online art sales may be up by 12% but the annual growth rate further slows down. Confidence among repeat buyers and the vibrancy of the online art market has broadened the interest in cross collecting.

Online art market sales reached USD 4.22 bn in 2017, up from the previous year by 12%. This was lower than the 15% Y-O-Y growth in 2016 and further 24% growth rate in 2015. Hesitant and occasional art buyers will, after all, not easily convert to repeat customers. Active online buyers are making purchases at higher prices, though.

Additionally, the use of mobiles to purchase art has shot up to 20% in 2018 from 4% in 2015. The rise in mobile usage is in line with the doubling of mobile online traffic between 2014 and 2018. One-billion strong platform Instagram has become the favourite social media channel for art buyers, with over 63% stating it was the platform of their choice, up from 57% in 2017 and 48% in 2016.

The Issues Arising: Understanding The Problems

The failure of online auction house Auctionata towards the start of 2017, questions the ability of online players to expand in a growing and overcrowded marketplace. Growth in online-only auction sales from Christie’s and other traditional auction houses is on the rise, suggesting it may be back to the drawing board for the online art industry.

More competition is forcing auction platforms online to expand business and diversify income streams. Artsy, an online art platform, has several online auctions in conjunction with Phillips and Heritage in the past one year. Online auction platforms have become a veritable battlefield.

Buying collectables and art objects without physically seeing them also poses a serious challenge for buyers. A lot of buyers worry that artwork looks different when it appears in a digital image. Another worry is that the condition of the artwork is different from what is stated/anticipated.

The ABC of Art and Collectibles: Why Buyers Want to be Educated

About 80% of online buyers also said they would prefer more education about the piece being bought at the point of purchase. Education about the artwork and the nuances of fine art would enable them to understand their acquisition better.

The Problem of Price Transparency and How to Solve It

The art market is still opaque when it comes to prices. Independent valuation reports and the chance to talk to experts before taking the decision to buy art is important. So are feedback from previous clients and buyers and/or return guarantees. The use of blockchain in an online market gives buyers an opportunity to view sold prices over a stipulated time frame. This would then allow them to decide if the current price is fair.

The Future Prospects

While the online art market may consolidate onto some global platforms, many believe regional and local platforms may dominate. Divergence in views about whether the online art market will remain category specific has prompted concerns. While buying art online, a majority of the respondents in the Hiscox report also said they have been targeted online by cyber-criminals and around 15% of the attackers were successful.

Platforms online are unaware of the GDPR/General Data Protection Regulation since May 2018 to unify data standards. While online art sales are up despite a slowing global art market, bricks-and-clicks are gaining traction. Traditional auction houses like Sotheby’s and Heritage Auctions account for 19% of the online art market.

Third-party marketplaces are also gaining popularity, as galleries recruit clients online. Online gallery sales help to broaden the international collector base, but increasing competition is also expected. Diverging views on the future of the online art market contribute to uncertainty. Cryptocurrency could end up being the payment method in the future as blockchain technologies enter the art market.

Obstacles to Future Growth

Increasing the conversion rate of hesitant buyers is the key worry. Concerns focus on lack of physical inspection, worries about the condition and authenticity of the work and the reputation of the seller. There is clearly room for a user rated market place that can could perhaps answer the aforementioned issues. While artwork may be purchased at higher price points, there are more purchases at lower price points.

The greatest growth was seen for bricks-and-clicks auctions where traditional art houses have digital platforms for bidding and buying art. The offline world is catching up with online art auction houses. Sotheby’s has seen Instagram following grow by 102% between March of 2016 and 2017, for instance. Virtual gifting platforms on blockchain and virtual works could also be the direction for online art markets next. Clearly, the stage is set for growth, though the challenges are also mounting.