1. © 2005 UMFK. 1-1 Sothebys.com internet business models text and cases Kristin Belanger

2. © 2005 UMFK. 1-2 High End Fine Arts Auction Business

3. © 2005 UMFK. 1-3 Overview Introduction History Strategies Stakeholders Get Big Fast! 20-20 Hindsight

4. © 2005 UMFK. 1-4 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

5. © 2005 UMFK. 1-5 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

6. © 2005 UMFK. 1-6 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

7. © 2005 UMFK. 1-7 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

8. © 2005 UMFK. 1-8 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

9. © 2005 UMFK. 1-9 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%)

10. © 2005 UMFK. 1-10 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

11. © 2005 UMFK. 1-11 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

12. © 2005 UMFK. 1-12 “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.”

13. © 2005 UMFK. 1-13 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

14. © 2005 UMFK. 1-14 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

15. © 2005 UMFK. 1-15 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

16. © 2005 UMFK. 1-16 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.

17. © 2005 UMFK. 1-17 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

18. © 2005 UMFK. 1-18 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

19. © 2005 UMFK. 1-19 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

20. © 2005 UMFK. 1-20 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

21. © 2005 UMFK. 1-21 Stakeholders Buyers Sellers Employees

22. © 2005 UMFK. 1-22 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

23. © 2005 UMFK. 1-23 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

24. © 2005 UMFK. 1-24 Questions??