Sothebys

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© 2005 UMFK.

Sothebys.com

internet business models

text and cases

Kristin Belanger

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© 2005 UMFK.

High End Fine Arts Auction Business

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© 2005 UMFK.

Overview

• Introduction

• History

• Strategies

• Stakeholders

• Get Big Fast!

• 20-20 Hindsight

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History

• Samuel Baker – English book dealer– Advertised his sales with catalogues

• Over the years added:– Prints, jewelry, china, furniture, paintings

• Competitor: Christie’s – Also specialized in fine arts

• Became known for famous auction house in the world

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History

• 1985 sold Van Gogh’s “Landscape with Rising Sun” for $9.9 million

• Sold celebrity items as well• New York based

– Had major presence in London and had offices in 98 other cities

• Operated under Sotheby’s Holdings– Divisions include:

• Sotheby’s Financial Services, Sotheby’s Trusts and Estates Services, Sotheby’s International Reality Group, Sotheby’s Appraisal Services, Sotheby’s Insurance Brokerage Services, and Sotheby’s Restoration Services

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Auction Process

• Sellers contact Sotheby’s specialists– Agents would consign property– Sellers contact most relevant specialist to item

for sale– Specialists deem property owners value

• Specialists evaluate authenticity

• Then it was shipped to the New York location

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Auction Process Cont.

• Labeled entered into database and stored in Sotheby’s storage

• Catalogued, description is written, history, photograph

• Photographs are usually $900 per quarter pg. in color

• Then stored and await exhibition and sale

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Auction Process Cont.

• Catalogues sent to known prospective customers• Catalogues sold by subscription• Agents phoned individuals what items were going

to be for sale• Potential buyers could leave bids with Sotheby’s

Left Bid Dept. • Live auction: if highest bid is lower than the

highest bid – Sotheby’s employee would bid on behalf of the absent customer

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Auction

• Days before auction – items would be put into a window for display

• Displayed pieces on stage as auctioned off• Bidders had their credit approved before auction

(many long time clients)• Then bids began

– Once slowed – Fair Warning, then final bid

• Consigners could place a reserve price– If not sold above price – “bought in” (usually 30%)

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Auction

• Once purchased, buyer settled account, walked out or had Sotheby’s Purchasing Accounts Dept write an invoice

• Sotheby’s Art Transport Dept arrange shipping at the buyers risk and cost

• Estimated that majority of items sold broke even or lost money

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Revenue

• 20% of buyers premium up to and including $15,000

• 15% of the next $85,000

• 10% anything above $100,000

• Easier to sell lots then get lots to sell

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“You have to be the best place to buy to attract buyers. And you have to be the best place to sell to attract sellers.”

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Online Auctions

• Anticipate $19 billion in gross

• eBay “help people trade practically anything on earth”– $10.8 million in profit

• Christie’s– Put everything online, but did not have online

bidding– Streamed video allowed bidders to participate

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Sothebys.com

• 80% of lots sold for < $5,000• Potential market of buyers was enormous• 8 million millionaires most never attended

Sotheby’s• Offered two auctions through three vehicles

– Amazon.Sothebys.com for general arts between $100 and $1,000

– Sothebys.com for $1,000 and $10,000 fine arts

– Traditional live auctions

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Sothebys.com

• Volume of lower-priced lots increased

• Dealers were permitted to sell on Sotheby’s

• Expected 500 – 600 dealers to sign before sites launched– At launch 3,000 had signed

• Dealers did the same info as Sotheby’s did as special agents

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Sothebys.Amazon.com

• Partnered with Amazon for 15 mill. Qualified buyers

• Split all profits and expenses from auction site

• Amazon maintained site, dealer questions were forwarded to Sothebys.com internal customer service dept.

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The Sotheby’s Site

• Customers could click and begin bidding– Pre approved credit card– > $20,000 had a credit check

• Max. bidders could lose even if they had highest bid

• Implemented automated system• Auction length 2 weeks• Buyers out bided would receive an e-mail

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Physical Lots

• Each set of inventory stored separately

• Catalogued and sorted either to Sothebys.com or Sothebys.Amazon.com

• Each item photographed for catalogues

• Lists arrived each day with sold items

• Items were sent to the shipping part of Sotheby’s

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Dealer Lots

• Once info is compiled from Physical lots – checked by specialists and immediately available online

• Once sold – Associate prepared for shipping, finalizing charges

• Associate packed and shipped item and notified Sotheby’s of arrangement

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Customer Service

• Tier 1• Call center

– Helped answer questions about auctions

• Tier 2• Funneled calls

– Billing and lots – NY and London

• More than half questions were about website• Had problems w/ customer service

– Agents availability– Placing bids online

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Stakeholders

• Buyers

• Sellers

• Employees

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GBF?!

• Network Effects– Moderate to Strong

• “One man’s trash is another man’s treasure”

• Scales of Economies– Strong

• Didn’t segregate any type of art or artifacts• Or Countries/Languages

• Customer Retention– High – people were signed up for catalogues

• Always something of interest up for auction

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Success or Failure?

• Success! With auctions every two weeks there are always on-going auctions

• Expanded to different countries– Including languages

• Now offer more than just art and artifacts– Includes Diamonds, Gold, International Realty,

Financial Services

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Questions??