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internet
business models
text and cases
Sothebys.com
Kristin Belanger
© 2005 UMFK.
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High End Fine Arts
Auction Business
© 2005 UMFK.
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Overview
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Introduction
History
Strategies
Stakeholders
Get Big Fast!
20-20 Hindsight
© 2005 UMFK.
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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
© 2005 UMFK.
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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
© 2005 UMFK.
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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%)
© 2005 UMFK.
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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
© 2005 UMFK.
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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
© 2005 UMFK.
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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.”
© 2005 UMFK.
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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
© 2005 UMFK.
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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
© 2005 UMFK.
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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
© 2005 UMFK.
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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.
© 2005 UMFK.
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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
© 2005 UMFK.
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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
© 2005 UMFK.
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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
© 2005 UMFK.
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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
© 2005 UMFK.
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Stakeholders
• Buyers
• Sellers
• Employees
© 2005 UMFK.
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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
© 2005 UMFK.
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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
© 2005 UMFK.
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Questions??
© 2005 UMFK.