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MScSocSc in Management of Creative Business Processes The “hub transformation” of auction houses Sotheby’s and Christie’s business model evolution in a dynamic art market MASTER THESIS STUDENT: ADRIANA FERRARI STUDENT NUMBER: 96018 DATE OF SUBMISSION: JANUARY 2017 SUPERVISOR: BJÖRN PREUß NUMBER OF PAGES: 77 NUMBER OF CHARACTERS: 164.933 TABLE OF CONTENTS Abstract .............................................................................................................................................. 1 1. INTRODUCTION ................................................................................................................. 2 1.1. Research Question and Objectives ................................................................ 3 2. THEORY & LITERATURE REVIEW ............................................................................. 5 2.1. Strategy Theory ......................................................................................................... 5 2.2. Business Model Evolution .................................................................................... 7 2.3. Duopoly theory ......................................................................................................... 11 2.4. Theory summary ..................................................................................................... 14 3. METHODOLOGY ................................................................................................................ 16 3.1. Data Collection ......................................................................................................... 17 3.1.1. Secondary Data ................................................................................................... 18 3.1.2. Primary Data ......................................................................................................... 20 3.2. Data Analysis ............................................................................................................ 22 4. DATA ....................................................................................................................................... 24 4.1. The Competitive Environment: The Art Market .................................... 24 4.1.1. General overview and the “Relative Heteronomy” of the Art Market 24 4.1.2. Art Market’s Geography and the concept of Globalization ................. 27 4.1.3. The Art World Circuit ......................................................................................... 31 4.2. Industry background ............................................................................................ 33 4.2.1. Secondary Market and main Auction Houses .......................................... 33 4.2.2. Sotheby’s and Christie’s: the story of a duopoly ................................... 35 4.3. Strategies .................................................................................................................... 39 4.3.1. Market Segments ................................................................................................ 39 4.3.2. Sales’ themes and Departments ................................................................... 40 4.3.3. Primary Market .................................................................................................... 44 4.3.4. Information ........................................................................................................... 48 4.3.5. Art related businesses: Brand Licensing activities, Estates and Education………………………………………………………………………………………………………………………………49 4.3.6. Online Expansion ................................................................................................ 50 4.3.7. Global Expansion ................................................................................................. 54 4.3.8. Financial services ................................................................................................ 56 5. ANALYSIS ............................................................................................................................ 60 5.1. The Environment: Art Market Analysis ...................................................... 60 5.2. Market’s Dynamics, Companies’ Strategies and Business Model Evolution ...................................................................................................................................... 65 5.3. Duopoly Implications ........................................................................................... 71 6. CONCLUSION ..................................................................................................................... 73 6.1. Future possibilities and managerial implications ............................... 75 6.2. Limitations and further research .................................................................. 76 7. BIBLIOGRAPHY ................................................................................................................ 78 8. APPENDIX ........................................................................................................................... 86 8.1. Interview Questions ............................................................................................. 86 8.2. Interview n.1 Transcript .................................................................................... 87 8.3. Interview n.2 Transcript .................................................................................... 90 8.4. Interview n.3 Transcript .................................................................................... 94 Abstract The thesis has the aim to describe Sotheby’s and Christie’s business model evolution in the last decade, according to the market dynamics. The first part presents a selection of relevant academic literature as a foundation for developing the theoretic analysis. The chapter consists of three main parts: Strategy Theory, Business Model Evolution, and Duopoly Theory. As a second step, a description of the methodology follows: the work reports findings from an inductive, in-depth, longitudinal study of how the business models of Sotheby’s and Christie’s developed in the last decade. An understanding of the market and its characteristics is a necessary requirement for the auction houses’ strategic comprehension and analysis. For these reasons, the collected data concern information about the art market’s competitive environment, the industry background of auction houses, and a description of the most recent strategies implemented by Sotheby’s and Christie’s. Finally, the analysis chapter, connecting data and theory, demonstrates that the necessity to innovate in a market characterized by hyper-competition, new technologies and globalization, has pushed to a transformational approach of the houses’ business models. This strategic renewal has lead Sotheby’s and Christie’s to diversify their business, exploiting different market opportunities and becoming a “hub” for the art market. Moreover, the analysis also demonstrates how the companies’ strategies have evolved not just following the trajectory of the environment’s dynamics, but also in relation to each other, with evidences of interdependence and tactical interaction between the two auction houses. 1 1. INTRODUCTION “The past half-century has seen extraordinary changes in the role the auction houses play in the art market. The most significant is the change from being wholesale clearing houses for the art trade to becoming high-powered selling forces that deal directly with the final user” (Hook, P., 2013, p.255) The qualities of art as luxury goods, with high investment return and great social prestige, have made possible the professionalization of the art industry. Auction houses operate in this market as prestigious and renowned institutions and, with the ability to fix optimal prices for works of art, they stand as a point of reference for all the agents operating in the system. The top end of the industry is dominated by Sotheby's and Christie's, constituting a duopoly in the Western Art Market since more than 250 years (Casadesus- Masanell & Wise, 2010). Their coexistence has been characterized by great competition, commission war, cartel scandal and reciprocal switch of key employees, but neither competitor has been able to overtake the other by a notable margin. In the current economic times, the whole art market has seen some big changes: career-oriented emphasis in art education, globalization and Asian expansion, the development and diffusion of digital, the infiltration of technology in almost all areas of business, transparency of information, innovative marketing and sales strategies and the emergence of new competitors fighting to enter the fine art sales space. In a global context, the ‘duopoly state’ of the companies is at risk and neighboring market segments emerge. The advance of new competitors strongly affect the duopoly’s ability to maintain its high commission structures. In this new market environment, the two houses realized the necessity to innovate to protect their dominance. Consequently, in order to respond to this economic and cultural turning point, Sotheby's and Christie's explore modifications to their business model. According to Casadesus-Masanell and Wise (2010), some efforts by the two organizations are still in the infantile stage and thus the success of some initiatives is still unproven. The authors stress how it is necessary to 2 understand the process of their business model modification and the future possibilities for

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