Trading And Ipo confronts the theories of Clayton Christensen with those of Thierry Ehrmann, CEO and founder of ARTPRICE, to confirm, point by point, ARTPRICE's position within the precepts of the "disruptive economy".
Trading And Ipo: According to Clayton Christensen, disruptive innovation is primarily a way of defining the transformation of a market. An innovation that is disruptive allows a whole new population of consumers at the bottom of a market access to a product or service that was historically only accessible to consumers with a lot of money or a lot of skill. How does ARTPRICE justify its position as a disruptor?
Thierry Ehrmann: ARTPRICE is exactly that: the disruptor of the Art Market. We went from 500,000 avid collectors of postwar art to 70 million professional and non-professional art consumers thanks to information instantly available online. ARTPRICE has by far the largest art market information database in the world and provides unlimited access for less than $100 per year.
Trading And Ipo: According to Clayton Christensen, "the potential for the emergence of new companies of this type is substantial… and growing. Wherever there are activities that can dematerialized and reintermediated, there is room for new business models."
Thierry Ehrmann: That's exactly how ARTPRICE built its monopoly, in full respect of the law. We "standardized" 108 million works of art and more than a million artists with unique identifiers and perfect traceability, a task that involved over a million hours of work by art historians. The dominant disruptor cannot dematerialize and reintermediate without standardizing the market it wishes to monopolize. Once that was in place, it was easy for ARTPRICE to bring supply and demand into direct and ultra-rapid contact, either on its standardized fixed-price marketplace or on its standardized auction platform, allowing millions of people the opportunity to buy and sell artworks in just a fraction of a second.
Trading And Ipo: According to Clayton Christensen, "disruption helps new models to emerge and creates larger markets by making products and services cheaper and more accessible in markets that have been dominated by non-transparent oligopolies or companies that enjoy "status quo profits"". This involves a fundamental, radical and irreversible transformation of the capitalist system. "Disruptors are innovators seeking solutions to the problems they encounter."
Thierry Ehrmann: We were very lucky to arrive on an art market whose players, of all sizes, were still operating with nineteenth century practices with a high level of distrust for computers, no standardization whatsoever, opaque information closely guarded by a veritable caste, often with hidden agreements between them and incestuous relations with those in power. And that had been going on for more than five centuries. On top of that you had a large market of "willing victims" who would buy artworks at somewhere between 7 to 9 times the price paid by the seller. Now, with ARTPRICE and its capillarity on Internet via principally GOOGLE and subsequently BAIDU (number 1 in China) and BING (Microsoft), and after making 540 million data available online in six languages, the margins have mechanically collapsed. To summarize Clayton Christensen, we found "solutions to ancestral problems" via innovation.
Trading And Ipo: According to Clayton Christensen, "disruptive innovation is quickly becoming the cruel and brutal rule of capitalism." As a result of this new context, the companies and institutions of the "old economy" literally buckle under the weight of regulations, overhead expenses, the immediacy of the market, the financial results demanded by financial markets, the jobs that need to be maintained, etc. ... and try to pressurize governments to throw regulatory batons into the wheels of the disruptors, often with little or no effect, and above all, often increasing their exposure to long-term risk. They can also imitate the disruptors in an attempt to grab the remaining market shares with the hope of benefiting from the overall increase in the size of the market. As a last resort, they can buy up newcomers, if they can afford it, which is not always the case.
Thierry Ehrmann: Clayton Christensen's analysis applies to ARTPRICE in every respect. The old economy of the Art Market has launched nearly a hundred legal actions, all of them futile and some of them extremely vindictive. Our legal response was equally ruthless and much blood has been shed…. but you can't stop the train of history.
70% of the art market's players are dying, crushed by overhead costs, auction room closures, real estate costs… with thousands of employees being made redundant.
In France, the business community and the State have a visceral fear of disruption. This has been amply demonstrated in the telecom, hotel bookings and taxi sectors… amongst many others.
After 500 years of monopoly (since 1556 in fact), the old French art market appealed to the legislator to pass reforms (2001) and then prompted the "reform of the reform" in 2012, under which, in 2014, they managed, quite simply, to get the term "online auction" banned from the Internet. In fact, they dreamed up practically everything possible and imaginable to kill off any kind of market disruption, which is why we are leaving for the United States (New York) via our subsidiary Artmarket.com, formerly Artprice Inc. / Sound View Press (1973).
Our strength is the full standardization of the Art Market across the entire value chain. This standardization is protected under intellectual property rights and is absolutely essential for dematerialization. After many years of under-valuation, we have decided to get the true value of our client base recognized via an IPO on the US market. We have a preference for the Nasdaq which incidentally has just crossed the 4,500 threshold. French accounting methodology is closely linked to the old economy. The concept of the digital economy is non-existent in France and hence an appropriate valuation in that country is impossible.
Trading And Ipo: ARTPRICE claims to have 3.2 million members and targets 12 million members. AirBnB claims 11 million members and its value exceeds $10 billion. What is the difference between and an AirBnB member and an ARTPRICE member?
Thierry Ehrmann: A huge difference: unlike an AirBnB member, an ARTPRICE member cannot be substituted by another member. In fact, ARTPRICE members are extremely well defined (qualified) from a commercial perspective (logs, Big Data) which allows us, in strict compliance with European and American legislation, to know what they are looking for, possess, or wish to sell in terms of art (fine art). Even if the leading three auction houses in the world combined their databases, they wouldn't be able to simultaneously achieve such a deep level of information or compete with the number of members that ARTPRICE has. To answer your question about a comparison with AirBnB, their members are substitutable because they are homogeneous. In the case of ARTPRICE, our members are not interchangeable because they are heterogeneous. It is therefore obvious that the value of ARTPRICE is much higher than that of AirBnB based on the specificity ("qualification") of its members.
Trading And Ipo: It may be helpful to briefly overview the two main activities of ARTPRICE's business: the first, that we are most familiar with, is that of providing all information regarding the art market, along with all indices, statistics and price levels; and the second axis is the Standardized Marketplace. Can we talk about the first historical activity?
Thierry Ehrmann: Yes, we come with a considerable advantage over a pure start-up because we have the position of world leader in art market information with over 3.2 million "qualified" members and more than 30 million indices and statistics. Moreover, we are the only group to produce highly reliable data covering a very broad input base with highly-targeted surveys. Our methodology is built around the analysis of repeat sales. This method consists in following the history of an artwork, leaving no room for doubt, and calculating its price index over time. Previously the main method used was the comparison method, which, in the Art Market, gives extremely poor results. To construct this perfectly legal monopoly, we had to buy almost all of the historical companies operating in the publishing sector of the Art Market, i.e. all the companies that produced the price guides, artists' biographies and descriptive catalogs ( catalogues raisonnés ) in Europe and the USA .