How the ‘Platform Delusion’ of Big Tech Helps Explain Why Galleries Are Finally Turning Away From Art Fairs (and Other Insights) – artnet News

Every Wednesday morning, Artnet News brings you The Gray Market. The column decodes important stories from the previous weekand offers unparalleled insight into the inner workings of the art industry in the process.

This week, watching cracks form in the dominant narrative

Two closely linked questions loomed large over the return of Armory Week in New York last week: Would collectors show up to the fairs and spend? And, even if they did, would we also find evidence that the shutdown was a permanent inflection point in dealers relationship to art fairs as a whole?

Although healthy sales atthe ArmoryandIndependentindicate that the answer to the former was a strong yes, the non-participation of multiple big-time dealers suggests the same yes applies to the latter question too. To better understand how we got to this stageand why fair defections could accelerate from herea new framework for thinking through the Big Tech ecosystem becomes useful.

More than one fairgoer pointed out to me last week that three of the four mega-galleries were conspicuous in their absence from the Armory Show: Hauser and Wirth, Gagosian, and Pace Gallery. Also opting out was high-end partnership Lvy Gorvy, whose namesakes already signaled that they will strictly show at fairs in Asia once their new venture with Amalia Dayan and Jeanne Greenberg Rohatyn, LGDR, opens next year.

A closer look around town reveals that a slew of other prominent locally headquartered shops were content to bypass the Armory Week expo scene as well. That list includes Tanya Bonakdar, Paula Cooper, Gladstone, Marian Goodman, Greene Naftali, Casey Kaplan, Anton Kern, Lehmann Maupin, Luhring Augustine, Matthew Marks (one of the Armory Shows cofounders long ago), Mitchell-Innes and Nash, Petzel, Salon 94, Jack Shainman, and Sikkema Jenkins and Co.

Reached after the Armory Show closed its run, executive director Nicole Berry said this years comeback edition of the fair was among the most successful in our nearly 30-year history and illustrated why in-person fairs are irreplaceable.

Berry noted that many top New York galleries, including 303 Gallery, Kasmin, and Sean Kelly, among others, have shown unwavering support by exhibiting at the Armory Show year after year, while other New York dealers such as Marianne Boesky, Almine Rech, and David Zwirner returned to the Armory Show this year after a long hiatus because they recognized the opportunity that in-person fairs present. She relayed that exhibitors were uniformly enthusiastic about the show and its new Javits Center home, and that many reported steady foot traffic, collector connections, and robust sales.

For galleries outside New York, including our international exhibitors, the fair has become their primary gateway for accessing New Yorks strong collector base, allowing them to build new relationships and place works with important institutions, Berry said. A cultural capital like New York needs an art fair, and we are proud to provide the Armory Show as New Yorks art fair.

So then what was up with the opt outs? No doubt proximity played a role in some cases. Obviously every New York dealer on the absentee list operates one or more permanent galleries in Manhattan, with most of them in Chelsea, sandwiched between the Armory and Independent (with the upstart Future Fair in their midst). Why spend tens of thousands of dollars on a booth when you can just draft off the fairs momentum and drawing power in your own bigger, better space?

The calendar in this topsy-turvy year may have contributed too. This should be the one and only time that 11 days, not three-plus months, separate the respective premiers of the Armory Week fairs and Art Basels Swiss flagship event. Hauser and Wirth partner Marc Payot alsotold Vanity Fairs Nate Freeman that the mega-gallery chose last week as the time to debut its high-octane Gotham solo exhibitions of Philip Guston and Avery Singer simply because of a desire to open as early as possible not so much thinking about the fairs, really more about maximizing the time for these shows.

Vanessa German, Hammer Head Rage Machine Agony Machine Baptism (2019) at Kasmin, New York, at the 2021 Armory Show at the Javits Center in New York. Photo by Sarah Cascone.

Yet taking Payots explanation at face value ignores that ghosting on the fair scene during Armory Week is not as new as the COVID changed everything narrative tempts us to believe. Of the 19 top-tier galleries on my expo-absentee list, only Gagosian exhibited at the Armory in 2020. Nor does this appear to be a matter of the decision makers simply changing out one of New Yorks art fairs for another; none of these dealers went smaller and more focused by showing at this years Independent, either. (More than half of the 43 exhibitors at Independent, including blue-chippers like Karma, Lisson, and Vito Schnabel, hailed from the Big Apple.)

So, in the full light of day, bailing on the 2021 Armory Week fairs looks much less like either a sudden turn by only the markets few apex predators, or a strict response by a wider swathe of New York dealers to the upheaval of the coronavirus. Instead, it feels more like a structural shiftone that that has maintained traction for multiple yearsandcounters the early 21st-century mantra that more is always more in the gallery sector. It also lives up to the reality that insiders and analysts have been talking about fairtigue in principle, if not in name, for at least 11 years.

Its not as if this situation only applies in New York either. Art Basel global director Marc Spiegler recently confirmed that (as Wet Paint guest columnist Julie Baumgardner phrased it) more than a handful of galleries had the intention of calling it quits on the brands flagship fair this month, but that the extraordinary measures taken by the brand to try to shore up exhibitor supportheadlined by a $1.6 million one-time solidarity fundhad succeeded in getting (in Spieglers words) every single gallery to recommit to the fair.

Still, chatter is already amping up that at least one major seller will forgo Art Basel Miami Beach this December. Saturdays edition of The Canvas (which explored whether Armory Weeks titular event has enough of a unique selling proposition to sustain, under the ominous subject line How Many Years Does the Armory Show Have Left?) mentioned an unconfirmed yet persistent rumor that Pace is the gallery reaching for its parachute ahead of South Florida. Expect plenty more speculation in the next two months of our continuing Delta variant drama, especially now that the U.S. has plummeted to dead last in vaccination rates among G7 countries.

In short, were (finally) dealing with a structural issue. As Independent founder Elizabeth Dee told me, If were talking too much about the future of one art fair, then were not talking enough about the future of art.

But art dealing isnt the only trade where industry-defining actions have begun deviating from a generational narrative. Several of Silicon Valleys most powerful, most valuable firms have quietly moved off the path that the general public and even many top-flight industry analysts assume theyre still traveling. Thats the contention of author and Columbia Business School professor Jonathan A. Knee in his new book, The Platform Delusion: Who Wins and Who Loses in an Age of Tech Titans. His core argument can also help elucidate the newfound selectivity around big-ticket art fairs that galleries may finally be adopting.

Knee offered an overview of the books thesis in the New York Timestwo weeks ago. In his telling, the platform delusion originates in a core misunderstanding of network effects, the supposed driving principle behind so-called platform tech firms like Amazon, Apple, Facebook, Google, and Netflix.

For the uninitiated, network effects (sometimes called the flywheel effect) occur when every new user or customer increases the value of the network to existing users, Knee writes. It isnt just that more users make your product or service bigger,they also make it better for everyone who has already bought in.

Why are network effects so valuable, though? Increasingly, the answer you hear from platforms has to do with their embrace of an asset-light, digital-first business model. Moving in this direction vastly upgrades any companys capacity for collecting data, then exploiting it via machine learning and artificial intelligence. The idea is that more users mean more data, which in turn means more competitive advantages to be gained from mining said data with algorithms. Increase the size of your network enough, and you become unstoppable in your chosen lane, as Amazon et al. now seem to be.

As a result, Knee argues, Wall Street values these Bay Area giants much more richly than their economic fundamentals justify. The storyline also motivates early-stage investors everywhere to push other startups toward a frenzied pursuit of rapid, exponential growth at all costs, including financial and organizational sustainability.

But contrary to what weve been hearing from outside analysts and the platforms themselves for close to 20 years, Knee argues that this thinking is all wrong. He writes:

The problem with this narrative is that it ignores the numerous ways in which the new digital platforms actually make businesses more vulnerable to competitive attack compared with the analog models that they have disrupted. The ease with which customers can switch undermines captivity, and the asset-light nature of these businesses both lowers entry barriers and the level of activity required to break even.

In other words, going strictly digitala move aimed at making a company accessible to everyone, everywhere, all the time, to chase network effectsactually backfires in crucial ways. Its easier for customers to defect to a competitor when all they have to do is click over to a different URL rather than, say, drive 30 miles to a rival store. Eschewing physical infrastructure also means reducing overhead costs, which makes it friendlier for competitors to both enter and stay in the game. No wonder, Knee writes, that right up until the COVID-19 crisis hit, struggling online retailers were increasingly looking to solve their structural woes by opening up mall outlets.

The platform myth obscures these problems with spin. Mostly, the rest of the world falls for it, even as internal correspondence proves the startup kings themselves recognize the narrative is bogus.

Case in point: Out of the five tech giants I mentioned earlier, Knee points out that Facebook is the lone example where network effects legitimately power the business plan. Apple, Amazon, Google, and Netflix are just singing alone to the tune while their hands do something else offstage. In fact, Knee relays that Netflix CEO Reed Hastings admitted to him in an interview that the companys failed pursuit of network effects over nearly two decades confirmed they were nothing more than a competitive fantasy for his company.

A visitor looks at an artwork by Anne Collier entitled Woman Crying (Comic) #7 at Art Basel on June 12, 2019. Photo by Fabrice Coffrini/AFP via Getty Images.

Although its not a one-to-one relationship, the platform delusion has an analogue in what Ill call art-fair folklore: the narrative that showing at a high number of art fairs is the best, most efficient strategy to sustain your gallery thanks to the exposure it gives you to a critical mass of new clients in other regions. And I dont think its a coincidence that both myths are starting to crumble at the same time.

The rationale for exhibiting at as many fairs as possible always hinged on a kind of alternative network effectone based on locations rather than users. Even if some of those locations were temporary, the more of them a dealer operated throughout the year, the more valuable their business theoretically became because of the high-level, in-person buyer outreach they enabled. Going big on art fairs was not quite a way for galleries to make their inventory accessible to everyone, everywhere, all the time (it took the online-viewing-room boom to do that), but it did allow them to get as close to those absolutes as possible in the physical world.

But, like the tech platforms that went fully online to chase network effects, dealers who splashed out on the maximum number of fairs every year gradually began to recognize that, after a certain point, the move made them more vulnerable, not more powerful. One of the reasons was the same, too: it rendered them more interchangeable with their competitors.

This is particularly true at big fairs with hundreds of exhibitors. In those cases, waltzing to the next booth is no more strenuous or time-consuming than typing in a new web address. Consolidating so many rivals into one space therefore becomes more of an advantage for buyers than dealers or their artists, both of whom risk falling victim to what I call the tyranny of options: a monsoon of choices that often overwhelms the distinctions between them. The effect is especially acute when you have so many artists working with multiple dealers around the world rather than opting for exclusive global representation by a single gallery, a privilege only a small number of heavyweight sellers can realistically live up to anyway.

Yet its questionable how much even collectors benefit from giant fairs. Dealer Ed Winkleman observed as far back as 2014 that massive scale and outreach had already led to a scenario where buyers tended to talk about which fairs they acquired from, not which galleries. And while each major expo has a long list of perennial VIPs, that means nothing for whether the scores of potential new clients trawling the aisles will become even one-time clients of the dealers or artists exhibiting there, let alone repeat patrons.

You have to set up the environment for success to take place, and maybe the environments that some of these bigger fairs have been inheriting for decades without changing much are not the environment for human-scale, meaningful, memorable art experiences to take place, Dee said.

At the same time, overloading on art fairs also exposes galleries to one blade that cuts twice even as its counterpart in the platform delusion cuts only once. Whereas digital ubiquity meant the platforms lowered their overhead costs, physical ubiquity at art fairs meant dealers ballooned theirs in a sector where support from outside investors is scant, margins are generally thin, and regularly breaking even (if not turning a profit) matters almost all the time.

But now that fairs and galleries alike have also mounted an ever-spinning year-round carousel of online viewing rooms, they are also galloping headlong into online competition from upstarts who can present and market themselves digitally just as effectively for the same low cost, if not even less. (This is a double cautionary tale for galleries like Pace that are intent on launching their own NFT marketplaces.) So the COVID-induced shift toward digital sales has simultaneously reduced the value of some physical fairs and, as Knee asserts for the platforms, diminished barriers to entry and the endurance threshold faced by scrappier rivals.

Installation view of Independent Art Fair. Courtesy of Independent.

For the most part, I think this strange moment in history has just given dealers license, courage, and/or the financial necessity to finally scale back their booth spending in a way theyve long meant to. Even some of the mightiest galleries have been paying lip service to the idea of reducing their annual fair commitments for years. Some had already started to match words with deeds, at least when it came to smaller regional fairs, before the advent of the social-distancing era.

This is why I think we would have seen the same result whenever the industry faced its next system shock, regardless of whether that shock hinged on public health, macroeconomic instability, or any other societal rupture. This is less about any risks directly linked to superspreader events than it is about the clarity found in a grand economic reckoning.

Knee writes something similar about the platform delusion:

The true danger of believing the various myths of the platform era lies in what happens when market euphoria subsides, as it inevitably does, and making informed distinctions among technology investments becomes essential for financial survival. Whether investing, operating or regulating, it is critical to pinpoint the true source and extent of individual advantage rather than relying on simplistic delusions to guide decision-making.

If this fall indeed marks the beginning of the end of art-fair folklore, and the first steps toward greater selectivity in the sector, then it was past due. If not, then the shift is on its way soonand a whole new set of hard questions about gallery sustainability will follow right behind it.

[Dealbook | The Platform Delusion]

Thats all for this week. Til next time, remember: change happens very slowly, then all at once.

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How the 'Platform Delusion' of Big Tech Helps Explain Why Galleries Are Finally Turning Away From Art Fairs (and Other Insights) - artnet News