Take me to an art gallery and I'm lost. I can't tell what's good, what's great...where fine art is concerned, I'm basically the Pope in the Monty Python skit The Penultimate Supper: "I may not know much about art, but I know what I like."
But what I do know is that buying and selling fine art is big business: Total worldwide auction sales in 2018 were $19.4 billion (up from just over compared to $3 billion in 1989, a nearly 500 percent increase), and between gallery and online sales the total art market is now estimated to be over $60 billion.
And at least for some, a profitable business: Earlier this year, Monet's "Mueles" sold for over $110 million at auction, a price 44 times greater than it was purchased for in 1986. At the same time, though, the average price of a work of Modern and Impressionist art sold at auction in the first half of this year as down 35 percent compared to the same period last year.
All of which makes buying art, much less investing in art, a difficult proposition: Price aside, understanding what a particular work is actually worth was nearly impossible.
And then along came Artnet. In 1989, Artnet was the first to publish sales prices of auctioned art. Over the years -- and after considerable investments in expertise and technology -- Artnet has become the go-to online art pricing guide for industry professionals and collectors.
More recently, Artnet began holding online auctions: Which means that if you've always wanted to own a Banksy, you don't need to visit a gallery or auction house. (But you will need a fair chunk of change.)
All of which made it a great time to talk with Jacob Pabst, the CEO of Artnet who led product launches like Artnet Auctions and Artnet Analytics, about building a business in such a high-stakes industry.
The original idea for Artnet is one familiar to any economist: Price transparency promotes the growth of a market.
The company was founded by Hans Neuendorf. Hans had considerable experience in the art market, discovered artists like Otto Neumann... he realized many of the problems in the art market could be overcome with the Internet.
Price transparency was the first. If you wanted to buy a piece of art, there was nowhere to go for objective price data. Artnet collected information from all the auctions, and after each sale made that data available to our clients.
Collectors loved the service... but at first, many of the big auction houses and art galleries didn't. So it took the company over a decade to become profitable.
But now the art galleries are our biggest clients: Sotheby's, Christie's, private collectors, banks, insurers... everyone relies on our data.
But it was a largely manual process.
Before we took the service online, we sent reports by fax. And we got a lot of complaints because the faxes were generated automatically and some of our clients woke up to their fax machines squawking. (Laughs.)
In 1995 we went online. We were not only the first online art magazine, we were the second online content publication in the world. Slate was first, Artnet was second.
And on top of that we launched the gallery network, which gives galleries the opportunity to reach a broad audience quickly and at a low cost by having their websites searchable on Artnet.
After all, most people are not searching for a particular gallery; they're searching for a particular artist or work. If you're a small gallery in Hamburg and you have a Warhol for sale, people might not find you. But since they can be on a platform with a great Google ranking... they can reach a worldwide audience.
All of which makes sense. But holding online auctions for extremely valuable artworks seems hard to imagine. I, at least, would want to see what I'm buying...
We wanted to bring transactions online for a number of reasons. Say you want to buy or sell at a traditional auction house. You may have to wait at least seven months since the sales only take place in spring and fall. You have to get admitted to the auction. Wait to get paid. The transaction fees are usually over 30 percent...
It's a relatively inefficient and time-consuming system.
We wanted to create a 24/7 marketplace. We don't take possession, but we do guarantee authenticity and quality, and everything is supported by our price database.
Keep in mind we don't focus on the primary market (the first sale of an artwork, either through a gallery or directly from the artist's studio). We focus on artists who are well known and have a market. Plus, oftentimes the buyers don't even show up at traditional auctions -- they either call in or are represented by a middleman.
Guaranteeing authenticity requires considerable expertise.
We have an internal team of specialists who vet every work being sold online. There are steps you have to pass to be a seller, we ask for authenticity reports, provenance, hi-res photos... we sometimes even send a specialist to view the work in person.
In over ten years we've had basically zero problems with fake works. And if that did happen, we reimburse the buyer.
Our reputation is very, very important to us. In fact, it's everything.
Like many businesses, you're a combination of things: In your case, you're an art company and a tech company.
It's a fascinating industry, especially because we're changing the way the market works. And it's fascinating to see the opportunities technological changes create for how we run our business and serve our clients.
Software engineering, artificial intelligence... things that took weeks a decade ago now take minutes. And with virtual reality... we might be able to do much, much more.
Of course that makes finding the right people for our team imperative. The art market is not only special, it changes constantly.
One change is that between price transparency and online tools, the art industry is probably less of a "relationship" business.
A big misconception early on is that we were trying to replace an entire system. We never intended to replace galleries or auction houses. There will always be galleries. While in the Chinese market artists are more independent and tend to go directly to collectors, and vice versa, in the Western world artists are typically discovered and represented by galleries.
That's not something that technology can replace.
We just give galleries, auction houses tools to make their jobs easier. And by creating transparency, people who were hesitant to buy can trust, can analyze, can look at a purchase from a financial perspective... and be much more comfortable about their decision to purchase a particular piece.
We're not replacing. We're enhancing.
How many people who purchase art do so because they see it as an investment, versus simply loving the piece?
Twenty years ago you couldn't ask that question. People didn't like it. (Laughs.)
Buying art is, at least in some ways, seen as an investment, and we probably contributed to that perspective.
But art is first an emotional decision. Then, once you have an emotional response, you also need the confidence to make a value decision. You want what you want... but you also want to know that the price you pay is fair.
That's why we're working on additional products that will sit on top of our price database: Algorithms, analytical tools... the more data people have, the more confident they can feel.
Artnet has been responsible for several majors shifts in how the art industry functions. What are you most proud of?
I'm very proud of Artnet News. Originally it was a magazine, but eight years ago we stopped publishing the magazine and turned it into an art news: Price data, analytical pieces, how certain markets are developing, up and coming artists and sectors... while data is important, we also analyze and evaluate that data.
We built the platform within three months with an entire team creating content even before we even had a product.
Since then we've tripled our traffic. Our advertising revenue is through the roof. And it brings clients to the site every day -- even though people don't buy art every day. They research prices, look for trends...
We're all very proud of what it has become, because we know provide something our clients really want.
Isn't that the goal of every business?