A few weeks ago, I wrote an article spotting a future trend, first noticed by Autodesk´s Alexander Oster, towards a commoditization of the powder bed fusion portion of the additive manufacturing (AM) industry. But, there is more going on than just that. By interviewing original equipment manufacturers (OEMs), industrial users of 3D printers, large enterprise 3D printing users, and suppliers to the industry, I think that there is more segmentation ahead.
For the first time we’re truly starting to see differentiation and further divergence of needs from players in our industry. This is happening at a time when that divergence could lead to truly different segments that work more like interconnected vats than a truly global market. At the same time, we’re seeing a proliferation of materials, software, and services that are geared towards catering to these diverging segments. I thought that it would be a good exercise to describe the major trends to initiate some discussion in the industry because I believe that the implications could be profound.
The Four Stages of the 3D Printing Market
I see the AM industry as progressing through four stages: from local to global, continental, and finally a segmented, archipelago-style industry whereby there are many islands of expertise, materials, software, and machines. Initially, there were local players catering to very local markets. Peugeot made cars in France. If the company wanted a prototype in Belgium or the Netherlands, they would call Materialise. Then, we saw a globalized industry: Peugeot is French and would sell its cars mostly in France, but also in Algeria, Belgium, and Vietnam. Everyone used Materialise software, but could get a prototype in the Netherlands or California made by a local firm.
Globalized, in this sense, means that the designers of globalization, e.g. the West sells to everyone. In Germany, German cars predominate, but there are also Peugeots and Fords. Ford is strong in the U.S., but everywhere else, as well. This is the globalized stage whereby local strengths parlay into limited but truly global competition. Later we saw true Globalization where ¨they sell to us too¨ which has put western governments into a sudden reverse gear about globalization and its discontents. Or in other terms, it is efficient markets that cause unemployment over there, it is a dumping, unfair competition, a national security worry, if it causes unemployment in Western Europe or the US.
The Continental Stage
Later on, the car industry became segmented and we saw the emergence of a stronger, consolidated continental industry. There is still global competition, but acting from strongly consolidated local markets: e.g., the big three in Detroit or the intensely Japanese, domestic market.
This continental stage looks a lot like globalization but smacks of mercantilism and it is the step that 3D printing occupies right now. We can get a prototype made everywhere pretty much, but if we need AM for production, there are precious few partners. No one is surprised if the French government opts for a French machine. By and large, everyone covers the market within their own technology silos.
We have conglomerates that sell everywhere and dominate the market. They are strong in their countries, less strong yet still powerful in their regions, and project their sales outward from a strong capital base. Think Stratasys, EOS, 3D Systems, SLM, GE, Materialise. Meanwhile, there are smaller players emerging that flourish in niches. There is also further consolidation afoot, as players seek to become players of note by rolling up fragmented parts of the AM sector; see American Industrial Partners and CORE Industrial Partners attempts to bring order to the fragmented U.S. manufacturing service market. Generally, however, we’re not seeing the full effects of consolidation across the industry yet.
Confusion about Consolidation
This is because, up and until a few months ago, anyone with half-a-brain and a quarter-of-an-idea could get $5 million to try out starting a 3D printing business. This meant that there was a lot of air and silliness in our industry, as products were created without market fit or competitors emerged that really didn’t compete. From Tulip Mania to now this is what always happens, alas.
In our industry, we saw that many startups were just too optimistic. If there are 500 true 3D printing production sites out there, with four designers per site, then what is the market for a given type of software or service? If they’re growing their revenue at 30 per per annum, how will a firm outpace them if it isn’t actually making the market bigger?
These businesses are increasingly failing now that capital is tight. Optimism breeds optimists and the optimists are having to think grimly of the future. So, these businesses are not being taken over because they have too little revenue or install base to be meaningful for companies many times their size. Or they’re being bought for IP. The fossil record of the Cambrian explosion details all the creature designs that didn’t work, plus an increasing prevalence of those that did.
An Automotive Industry Allegory
So, the 3D printing market is consolidating but growth has been sorely lacking from underperforming public players, especially of the frothy, SPAC kind. We know that consolidation is happening, but it will take more than a few Google searches to verify this. For a parallel we can look at the automotive industry in the 1930s, where over half of U.S.-based automakers went out of business. This article showcases GM’s response to the recession by offering many more models in many verticals and markets (e.g., Stratasys) and Chrysler´s response, which was to increase efficiency (e.g., what most others are doing).
More dramatically still, the U.S. automotive industry had over 2,000 firms in the early period of 1900 to 1920. Yes, some of these were acquired or merged, but the vast majority ceased to exist or pivoted. Was there consolidation over the period? Of course! But, that doesn’t mean that every company had to be subsumed by others that still exist. Then, in the 1940s, “Chrysler, Ford and GM accounted for 90 percent of all U.S. car sales, with the rest divided between Packard, Hudson, Nash-Kelvinator, Studebaker, Checker, Crosley and Willys-Overland/Jeep.¨
The U.S. automotive market since is a very different story, with the smaller firms disappearing. Now, Toyota has the largest market share in the U.S. (around 14%) followed by GM and Ford. The top five have around 50% and this includes the ostensibly Dutch Stellantis and Hyundai/Kia. Whereas Stellantis has been a noted consolidator, the top Japanese and Korean firms are not really known for acquisitions.
If we’d be silly enough to look at only how many companies of the initial 2,000 were acquired or only see this through the lease of market share consolidation by a few players at one point, we’d miss the bigger picture of volatility and new market entrants. Also, check out this list of, U.S. carmakers and when they went bust. Do also look at the calculus on average company age, now down from 58 years to 18. S&P companies also spend less than 24 years on the index, down from 33 years in 1964. Creative destruction still propagates and the invisible hand is not clapping for you.
As for our market, my theory here is that we are actually entering an archipelago stage. Here, local competition worldwide partially displaces previous consolidators. Increasingly, people will have local options in many more markets from materials, to software, and machines. National champions will emerge and a few key players will dominate different areas of our industry. This includes a few global OEMs, some local strong OEMs in China and other countries, and others with a mix of international and Chinese firms. There will be more focus on verticals and more industry- and application-specific verticals, startups and services.
Far from a big tent industry where everyone knows everyone, 3D printing will have dental startups that only focus on dentists and won’t really known to the rest of the sector. We will see specialization and localization as well as a more granular approach by specialized players in each area. This will, I believe, lead us to an archipelago whereby offerings, competitiveness and markets will be split.
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