Signaling that the once-scrappy online art market is maturing, two of the field’s most prominent start-ups, Auctionata and Paddle8, have announced that they will merge. The deal between the two online auctioneers creates a newly formed company that will lay claim to 793,000 registered users in 200 countries and more than $150 million in joint annual sales, making it, according to a news release announcing the deal, one of the top ten auction houses in the world outside of China.
“We foresaw more consolidation within the space and this will be one of the most important moves in that vein,” Paddle8 chairman, chief innovation officer, and cofounder Alexander Gilkes told ARTnews in a phone interview. In the same interview, Auctionata cofounder Alexander Zacke said, “It makes sense to join forces as you close in on the summit. We saw that both companies were growing very quickly.”
The news comes on the heels of the April release of the art insurer Hiscox’s annual report on the online market, which indicated that both companies had doubled their sales in the past year, and which put the overall growth of the online art market at 24 percent, bringing its total size to $3.27 billion—strong growth at a moment when the art market seems to be cooling. Hiscox asked buyers to rank the existing online platforms, and both Paddle8 and Auctionata figured in the top 10. (Christie’s took first place, followed by, in order of ranking, Artsy, Artnet, Sotheby’s, Paddle8, Saatchi Art, 1stdibs, Artspace, Auctionata, and eBay.)
“Although the ranking suggests that the traditional auction players are addressing the online opportunity effectively,” Hiscox’s report concluded, “the advent of online auction players such as Artnet, Artsy, Paddle8, and Auctionata aggressively pursuing market share implies that the Christie’s and Sotheby’s dominance in the traditional art market is going to be hard to replicate online.”
Referencing that part of the report, Zacke told ARTnews, “We believe that this market will eventually build one large company that will be the major platform for everyone who wants to buy or sell online.”
It’s something he has been saying for a while. In October 2014 he told Bloomberg he “doubts there’s room for more than one big site. ‘The question is, who is going to occupy this space?’ ” The merger with Paddle8 isn’t the first time Auctionata has considered joining forces with another online art purveyor. In August 2014, Bloomberg reported that Auctionata was in talks with the New York–based company Artspace. Artspace was later purchased by the publisher Phaidon Press.
Zacke, who cofounded Auctionata in Berlin in 2012, first met the Paddle8 founders three years ago, at a time when he was already exploring possible partnerships with other online art platforms. Unlike Auctionata, which does live-streamed auctions in vintage luxury areas such as cars, wine, and watches, Paddle8, which was founded by Gilkes along with entrepreneurs Aditya Julka and Osman Khan in New York in 2010, focuses on timed sales, including auctions curated by prominent figures in fashion and art, like Grace Coddington and Bob Colacello, and benefits for various institutions, with most objects priced under $10,000.
The two companies’ audiences, Zacke said, are 90 percent complementary.
Both companies have raised significant amounts of money. Auctionata has to date raised $88 million in equity capital. In March 2015, Auctionata, which had expanded in New York the previous year and started holding auctions there, had a Series C round of funding that brought in $45 million from investors like MCI Management, Hearst Ventures, and LVMH’s Bernard Arnault. (The next month saw several changes in the company, described as a restructuring, which included layoffs in the company’s New York and Berlin offices.) In October, Auctionata acquired the seven-year-old London-based valuation company Value My Stuff, which boasts 400,000 clients.
Auctionata works with higher-valued material than Paddle8, and has set two records for online artwork sales. In 2013 an Egon Schiele watercolor from 1916 sold for €1.5 million (around $2.3 million), becoming the most-expensive work ever auctioned online. In June 2015, Auctionata set a new world record for an Asian work of art sold in an online auction when Chinese collector Liu Yiqian, the founder of Shanghai’s Long Museum, bought an 18th-century automaton clock for €3.37 million ($3.83 million).
Paddle8, which has raised $44 million to date, added megadealer David Zwirner as an investor in December. Zwirner, a member of Paddle8’s board, said in a statement of the merger: “Auctionata and Paddle8 uniting forces strengthens this growing segment of the market. Globally, we are seeing a new era of collecting online. There is a desire and confidence to purchase from anywhere in the world at a moment’s notice, which benefits both individual buyers and sellers alike.”
Over the next year, Gilkes and Zacke said, the Paddle8 and Auctionata teams will be integrating the businesses, developing a new brand architecture and a single online platform, and looking at the operational scale and how to increase sales and distribute them across their different sales formats. Zacke said that the plan is for the merged company’s website to go live a year from now. He said that they have developed a “165-page integration road map,” though certain details are still to be worked out.
In terms of which brand the new company will use, “it’s not difficult to keep operating under the Auctionata brand in the German and European market and Paddle8 for the English speaking markets—domestic U.S, U.K., and other markets,” Zacke said.
Which domain the website will use is “the more tricky ,” Zacke acknowledged. He said the company is working with a New York-based branding agency to solve the question of what the new, single webpage will be called. He said the goal is to solve that problem within the next three to six months, during which time the company will also decide where to be headquartered. (Currently Paddle8 has its headquarters in New York, and Auctionata in Berlin.) He acknowledged that Berlin is at a distance from the center of the art market, compared to cities like New York, London, and Hong Kong, which is one of the factors that will have to be considered in making that choice.
There is also the matter of Auctionata’s impending public stock offering. Zacke said the preparations for an IPO in Germany are almost complete, but if the company were to be headquartered in New York, they would aim to list it on Nasdaq, “which would push our IPO back to square one.” Zacke added, “We know this, but it is not a concern to us. What is much more important is to be close to the market and close to our customers, so this will be the focus of this decision.”
Zacke and Gilkes declined to offer details on the financials of the deal, but said the companies’ boards and management teams will remain intact, with Zacke as CEO. Jan Thiel, currently Auctionata’s deputy CEO, will retain that title. Paddle8 cofounder Osman Khan, as chairman and CEO for the Americas, will work closely with Auctionata’s Joseph Stasko, who will serve as president and COO for the Americas. Paddle8 cofounder Aditya Julka will be the new company’s chairman and chief strategy officer. Auctionata’s Johannes Riedl will keep his title of COO, and Zacke’s wife, Susanne Zacke, a cofounder of Auctionata, will be chief marketplace officer.
As chairman and chief innovation officer, Gilkes will be instrumental in expanding Auctionata’s live-streamed auctions in the United States. Referencing popular programs like Antiques Road Show, Zacke said Gilkes will be reaching out to the movie and television industry for help in improving the “entertainment” factor of those sales.
Both Zacke and Gilkes pointed to how symmetrical the management skills are across the two companies. “Which is not always the case when you look at businesses, especially when they operate in the same market,” Zacke said.
“This is the perfect complementary partnership from the [standpoint of] geographical reach, user demographics, sales formats, and sales categories,” said Gilkes.
Together, the two companies plan to solidify their foothold in the middle-market—under $500,000—but Gilkes said that, with the addition of live-stream video, he can foresee possibly moving into higher-value objects. “As technology improves, and as our global collectors become more engaged, it’s only natural that we will start to move higher and higher up the value band,” he said.
The new company is banking on increased online-auction buying from a young audience—Gen Xers and millennials—and sees itself less as competition to Sotheby’s and Christie’s than as an added option for the tech-savvy. “We have built one thing that sellers increasingly like and that is a very large audience of online-savvy collectors that are increasingly willing to spend five-digit amounts online,” Zacke said. “And we’ve also heard from those sellers that they increasingly get the feeling that Sotheby’s and Christie’s are lacking in addressing this audience successfully.”
Zacke added, “The reason why other online businesses in the past have failed [is that they] tried to steal the users—the buyers and sellers—from Christie’s and Sotheby’s. That doesn’t work, because those brands are very powerful. And we have focused on creating our own audience.…Our combined audience, being complementary, is very powerful to every seller, specifically professional sellers that want to use the platform. Not necessarily as an alternative to Christie’s and Sotheby’s, but more as an additional channel.”