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The Myth of Disruptive Innovation in Online Art Selling Channels

I’ll counter much of the conventional wisdom and insist that online art channels are finally gaining a foothold in the art market. The future of that foothold remains to be seen, but I don’t think we’ll see a complete dismantling of the platforms now in place, the way so many previous efforts had just disappeared. What’s different now includes how the best of the players in this arena have integrated nicely into the overall market system, and increasingly dealers are counting on the additional exposure and/or income they’re seeing from online channels. A few may collapse, of course, and mergers are always likely, but unless the art market crashes entirely, I see many of them continuing to play a role long into the future.

The foothold is quantifiable to some degree now as well. Hiscox’s Online Art Trade Report 2015, puts the 2014 global online art market at more than S2.5 billion:

The value of the global online art market has risen from just under $1 billion in 2013 to an estimated $2.64 billion this year.

The TEFAF 2015 Report had it even higher:

In 2014, sales of art online were estimated conservatively to have reached €3.3 billion, or around six percent of global art and antiques sales by value.

How much of that represents Contemporary art in either estimation is hard to say.

Gaining this foothold has been no easy achievement (even as modest as it may strike many who see billion-dollar auction weeks as the new standard). Many a million has gone into shifting business models as the online channels have sought to crack the particularly resistant art market. More than the money though, a great deal of thought has gone into the current generation of online platforms. The best of them are increasingly listening to the art dealers, collectors, auction houses, and artists who drive the market, and responding in kind to what those players report as their needs. They seem to finally grasp that success in this market will not likely come from catering only to yet-uninvolved players.

This alone is a vast improvement over previous generations of entrepreneurs who felt the art market needed to be taught a few lessons on how things work online. This sense that you know better than current consumers is always a bad premise to begin any new venture, it should be noted.  From Facebook to PayPal, the most successful of the online platforms today are extremely responsive to their customers, as they’ve learned that that, in and of itself, is perhaps the biggest key to identifying and seizing the opportunities that set them apart.

Even just a decade ago, though, many new art sales platforms were insisting the future belonged to the model that could make the art market as it stood irrelevant by bringing in an entirely new, presumably overwhelming, group of people to buy art and disrupt the old establishment in the process. This didn’t quite work out for any of them (not yet, any how), which is why I find it kind of cute that new online arts channels are still insisting the secret to their success will be their “disruptive innovation.”

Coined by Harvard Business School professor Clayton Christensen, disruptive innovation describes “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”  Faith in this process is so widespread across American businesses now that Christensen has twice been awarded the “Number 1 Management Thinker in the World,” and his best-selling books are virtually required reading in Silicon Valley and beyond. It’s also so widespread that a slide on “disruptive innovation” is all but required for any venture capitalist to take your PowerPoint deck seriously. This is a myth though, and it needs to stop, at least in the art market, where it’s leading to a horrible waste of money, time, and talent.

Indeed, as if they hadn’t read a single press release by a dozen previously launched but now-defunct online art selling efforts, the young entrepreneurs behind the new channel Ziibra recently told NPR:

Historically, the problem has been that the gatekeepers are curators and gallarists and the people over at Sotheby’s who decide who gets to be a famous artist. Me and my tech buddies are about to change all that, we’re going to disrupt it!

Again, my first thought when reading that was, “Ahhh, that’s cute.” The problem is, disruptive innovation, as Jill Lepore noted in a brilliant New Yorker piece in June 2014, “is a theory about why businesses fail. It’s not more than that. It doesn’t explain change. It’s not a law of nature. It’s an artifact of history, an idea, forged in time; it’s the manufacture of a moment of upsetting and edgy uncertainty. Transfixed by change, it’s blind to continuity. It makes a very poor prophet.”

More to the point, Lepore notes that disruptive innovation thrives on panic, a sped-up over-reaction to market forces that only look prescient for about as long as it takes many a start-ups’ rent to triple and their backers to lose faith. Moreover, this panic can lead to a suicidal cycle of bad decisions. Indeed, it’s often the business that eschews the “disruptive innovation” approach that fairs the best over the long-run:

In the late nineteen-nineties and early two-thousands, the financial-services industry innovated by selling products like subprime mortgages, collateralized debt obligations, and mortgage-backed securities, some to a previously untapped customer base. At the time, Ed Clark was the C.E.O. of Canada’s TD Bank, which traces its roots to 1855. Clark, who earned a Ph.D. in economics at Harvard with a dissertation on public investment in Tanzania, forswore Canada’s version of this disruptive innovation, asset-backed commercial paper. The decision made TD Bank one of the strongest banks in the world. Between 2002 and 2012, TD Bank’s assets increased from $278 billion to $806 billion.

You won’t hear many of the now-more-established online arts channels touting their “disruptive innovation.”  Most have figured out that longevity comes more from listening to the market’s committed players than dictating to them or imagining some yet untapped pool of new players will pay the electric bills. Newer ones should put their energy into listening to the players in the market, as well as those hesitant to enter it, and being willing to be extremely flexible in how they serve those audiences. Disruptive innovation gains a bit of media attention (who doesn’t like to see the young turks lecture the establishment?), but it’s not the magical formula for success Christensen has been selling it as…at least not in the art market.