The Fine Art of the Deal - ArtFace.com acquires EArtGroup.com - Company Business and Marketing

Industry Standard, The, Dec, 2000 by Reena Jana

EArtGroup.com seemed to be on top of the online sales game. After just a few months in business, the Manhattan-based site had sold half a million dollars worth of art works and secured such juicy prospects as a Mary Cassatt portrait valued at $1.2 million.

But if the site's online experience started out as dreamy as Monet's Waterlilies, by last summer it was looking more like Munch's The Scream. By July, the company had nearly worked through its initial $2.4 million funding from New York's Archery Capital. The site began cutting its 15-person staff.

"We now have no less than five and no more than 10 employees at any given time." says eArtGroup.com's CEO, former securities trader Steven Lapper "we've experienced bumps in the road with our financing. So now we've got to pare back."

Welcome to chapter two in the short history of art e-commerce. Only a year ago, investors were clamoring to marry the glamorous art world with the fast-money pace of online sales. Well-known Net investors like CMGI jumped headfirst into the rarefied world of art sales, betting on sites like NextMonet.com and the shaky premise that they could lure first-time art buyers or deep-pocketed collectors unaccustomed to the Net.

EArtGroup has found a reprieve: French antiques site ArtFace.com has agreed to acquire the business in January. But no one's talking profitability yet Even leading sites like Guild.com and iCollector.com, which nabbed hefty additional funding this summer, are a long way from painting their balance sheets black.

Some art-repreneurs have already ducked out of the business. In August, Silicon Valley marketing executives Akash Agarwal and Atif Hussein sold iTheo.com and the site's 10,000 holdings to Artisan Network, an Atlanta-based e-tailer of art supplies. ITheo had been in business less than six months. Now, says an Artisan Network spokesperson, the founders of iTheo are "on to the next big thing, whatever that may be." Neither Agarwal nor Hussein responded to requests for comment.

How many major art sites will remain in business 12 months from now? Hardly any, says David Kusin, head of a Dallas economic research firm that has reviewed 80 art e-tail sites over the past year. Too often, says Kusin, the people who launched these businesses knew technology and finance, but didn't know the basics of selling art.

Let's face it: Art is physical. Which is why Lauren Wittels, an art adviser with Citibank's private banking division in Manhattan, advises her clients not to buy art online. "There is no way to tell if art for sale online is authentic or in good condition," says Wittels. "The only way to tell is to see a work in person. Buying online is like stepping into a deep and treacherous pool."

Maybe so, but high-end collectors have long been willing to buy remotely. Think of the mysterious telephone bidders who call in to Sotheby's to offer millions for a Van Gogh painting. Yet the buyers who indulge in such ostensibly risky business trust in only the best-known dealers and auction houses. Sotheby's has built up more than 250 years' worth of brand equity (enough to withstand a recent price-fixing scandal). So it's no accident that Sothebys.com has been the most successful online retailer of works priced over $1,000. Meanwhile, sites without such pedigrees often struggle to woo buyers on the Web.

It doesn't help that, so far, the operators of art sites haven't really tried to provide the personal courting that offline dealers rely upon to coax collectors into writing big checks.

Todd Hosfelt, owner of Hosfelt Gallery in San Francisco, says that he meets with top clients two to three times a month and talks to them at least once a week on the phone.

"I also invite collectors to dinner parties after an opening of an exhibition to meet an artist in person, which is standard practice among art dealers." says Hosfelt, who has only been in business since 1996, but consistently sells blue-chip works by contemporary artists like Aifredo Jaar. "Having that direct relationship builds trust."

Perhaps the next generation of online art sellers will take a click-and-mortar approach, giving sites a way to provide the kind of offline stroking that works so well for galleries and dealers. Onview.com is testing this strategy with the purchase of a New York City gallery where it hosts exhibitions. Meanwhile, many online art sites are finding that their best customers are decorators and designers -- pros who treat art purchases as business decisions and don't mind buying in bulk New York's Circline.com, Wisconsin's Guild.com, San Francisco's Visualize and London's just-launched Unit26.com all target this group.

"Our sales to date are 90 percent from interior designers, says Laura Laterman, P.R. director for Circline, where the average sale runs to $33,000. Business is also booming at Visualize, which is adding 10 employees to its 40-person staff. And even eArtGroup.com has caught the decorating bug. It's brokering the sale of 200 works by undiscovered artists to a corporate client At less than $2,000 apiece, these minor works carry neither the price tag nor the prestige of the site's much-prized Cassatt. Then again, the Cassatt still hasn't sold.