In 2003, Sotheby's declared that selling art online was a losing business.
"There are simply not as many people prepared to buy authenticated fine art online as we had hoped," Sotheby's Chief Executive William Ruprecht said at the time.
That year, Sotheby's broke off its partnership with online giant eBay, which it had hoped would help usher in a new age of buying Picassos and Monets with the click of a mouse. It didn't happen. By the time Sotheby's dissolved the 3-year-old partnership with eBay, it had racked up $100 million in losses.
Yet in the decade that followed, online art sales started to become big business, and Sotheby's archrival Christie's took the lead.
Christie's LIVE digital platform has become the undisputed leader in the space, with 83 online sales to date. It sold Edward Hopper's "October on Cape Cod" for $9.6 million in December, setting a record for an online bid in any saleroom auction.
In May, Christie's said it planned to invest an additional $20 million in LIVE.
So, Sotheby's partnership with eBay is a counterattack. Call it Sotheby's 2.0.
Starting this fall, eBay will start live streaming many of Sotheby's New York sales on eBay—giving Sotheby's a strong technology platform and access to eBay's 36 million frequent buyers.
"The growth of the art market, new-generation technology and our shared strengths make this the right time for this exciting new online opportunity," said Bruno Vinciguerra, Sotheby's chief operating officer. "We are joining with eBay to make our sales more accessible to the broadest possible audience around the world."
For eBay, the deal gives them the aura of the storied Sotheby's brand as it pushes into higher-end auction items. The auction site said it's creating a new marketplace for collectibles that will feature Sotheby's as the anchor.
Don't expect any $30 million works by Picasso or $58 million Jeff Koons balloon dogs on eBay. Sotheby's is starting out by offering 18 of its lower-value categories on eBay, including wine, jewelry, watches, prints and photographs. It will not include its evening sales of post-War and Contemporary art, which set the big multimillion-dollar price records and remain sought-after events among collectors.
But the cheaper stuff actually makes the fattest profits for Sotheby's. More than half of the lots sold last year went for between $5,000 to $100,000, proving that while Francis Bacons and Rothkos get the biggest headlines, the bread and butter of the auction business is lower-priced goods accessible to a much broader buyer.
Sotheby's said the global art market is currently estimated at around $65 billion, with annual online sales expected to reach $13 billion by 2020.
The deal is also reflective of the strategies set out by activist hedge-funder Dan Loeb, the Third Point chief who attacked Sotheby's last fall for its failed leadership. Loeb now sits on the board.
Last fall, in a letter to the company, Loeb called for Sotheby's to move into digital and broaden its customer base by reaching "emerging" collectors who start out with lower-priced items.
Loeb didn't comment on the announcement.
—By CNBC's Robert Frank.