RIP 3D Printing: 1987 – 2023, Complexity is Expensive

This is not clickbait; it’s a public service announcement. Where there was once a bustling activity, now there’s a noticeable quiet. People are revising their resumes for LinkedIn, and budgets are tightening. Job losses are everywhere, and what’s alarming is that even top-tier talent isn’t safe. Investment has stalled in venture capital and private equity-backed startups. Once sky-high valuations are coming back down to earth. SPACs are underperforming, and numerous publicly traded companies are nearing insolvency.

A troubling number of otherwise promising startups—with revenue, if not profits—are teetering on the edge. Talk of a potential merger between Stratasys (Nasdaq: SSYS) and 3D Systems (NYSE: DDD) is pervasive, but it shouldn’t distract from the reality: both companies are essentially flat in revenue growth since 2014. To put it in perspective, the entire 3D printing industry is generating about $15 billion in revenue—roughly the same as Apple made from AirPods sales in 2021 alone.

Harsh Truths

3D Systems Revenue 2010 to 2023 and YoY Quarterly Growth.

Stratasys Revenue 2010 to 2023 and YoY Quarterly Growth.

AI and ChatGPT have captivated investors, both their hearts and wallets. Journalists have shuffled the 3D printing industry into a pile of Post-Its, wedged on cluttered desks between nanotech, IoT, RFID, and flying cars. There our sector remains, lost amid coffee stains, a modern-day archeological landscape in a journalist’s paper maze. Companies specializing in polymers and metals seem indifferent to our future, more concerned about fluctuating fuel costs than anything else. Most so-called competence centers are busy producing PowerPoint presentations and paperweights, while actual manufacturing mainly occurs in press releases.

The applications that do work, such as Invisalign, jewelry, dental and surgical guides, orthopedic implants, and hearing aids, have remained unchanged for over a decade. We’ve barely scratched the surface in terms of new uses. While there’s been some improvement in cost and part quality, it’s marginal at best. We’re still prohibitively expensive for most applications and plagued by problems of accuracy, yield, and repeatability. Instead of forging ahead and disrupting traditional manufacturing, we find ourselves directionless and stagnant.

The mood is grim. When the industry was awash in irrational exuberance, I aimed to burst those bubbles. Now, as optimism hits its lowest point in the 14 years I’ve been observing, I want to infuse some much-needed positivity into the conversation.

A Fragmented World

Our world is increasingly fractured, with extremism on the rise globally. The collective will for long-term cooperation and achievement has diminished. Faith in and commitment to political parties, neighborhoods, corporations, countries, and fellow human beings have waned. Numerous political entities aim to erode democracy in their countries, and some state actors seem intent on sowing chaos, instability, and death. Several governments have essentially become criminal enterprises. The power of the press has been severely curtailed, making it almost impossible to hold slippery leaders accountable in the court of public opinion. Assaults on truth abound, and there’s a troubling eagerness to reverse the gains made in women’s and minority rights since the 1960s.

China, once seen as peaceful, has shifted its stance to openly challenge the global order. Its economic miracle has been restrained by tighter control over startups, billionaire entrepreneurs, and business in general. The priority has shifted from growth to subservience. China’s economic engine has become a complex web of local governments, party-influenced banks, connected individuals, and property companies. This system is fueled by a debt-driven cycle of urbanization, building increasingly marginal properties in ever more remote cities, all based on the shaky foundation of endless optimism and presumed perpetual growth.

Recent high-profile collapses like those of Evergrande and Country Garden are public markers of deeper issues within China’s economy. Capital flight, triggered by regulatory crackdowns and prolonged lockdowns longer than those in other countries, has sown doubt. China is facing a record youth unemployment rate of over 21%, and its exports and imports have both declined sharply, with annual numbers dropping by more than 7%.

In the United States, political discord has reached a point where meaningful structural changes and effective leadership seem elusive. The term “United” in United States feels more like satire than a reflection of reality. Europe, burdened by its own concerns about migration, the rise of far-right parties, and anti-democratic movements, has transitioned from a leader to a cheerleader in the quest for a better world. Most Europeans are more preoccupied with preserving what they have than with envisioning and creating a brighter future for all.

Oil-rich nations are using their wealth to temporarily stave off decline and appease a youthful, restless population. What used to be “bread and circuses” has transformed into golf tournaments and giant rectangles; “Let them eat cake” has become “Let them eat Maqshush.” In Latin America, pervasive corruption has created an unstable environment. Meanwhile, Africa continues to be exploited, its resources flowing into distant banks. In many ways, the more the world changes, the more it remains the same.

Viral Doubt

During the COVID-19 pandemic, we observed a divergence: some companies forged ahead while many others fell into a state of doubt. That doubt has now become widespread, leading to delays in major upgrades, strategic initiatives, and capital expenditures. Management teams are frozen, second-guessing every decision. A series of shocks—first the pandemic, then geopolitical events like the Russian invasion and the situation in Palestine—has made economic and political instability seem like the new norm. This atmosphere of doubt is only intensified when political unrest casts a shadow over concerns like fuel prices, long-term stability, and supply chains.

In such a volatile world, worry has become the default setting. Climate change adds yet another layer of uncertainty, casting doubt on the long-term survival of the human race. There’s a palpable increase in animosity and a decrease in compassion in an already uncertain world. Collectively, the planet is in a state of emotional stagnation. For our industry, this widespread hesitation translates into longer sales cycles, fewer equipment sales, and less adoption of additive technologies and industrial processes. A diminishing optimism for the future leads to reduced investment in it. In essence, our industry’s malaise is just one piece of a much larger, more complex puzzle of global uncertainty.

Complexity is expensive

3D printed tungsten carbide rod with coolant channels

It turns out that complexity is expensive, not free. Over the past fifteen years, billions in investor capital have flowed into our industry with the promise of revolutionary change, only to yield a more gradual evolution. Sure, we’ve seen steady growth, around 30%, and many companies have prospered. But instead of explosive “hockey stick” growth, what we’ve experienced is more akin to the gradual incline of a lacrosse stick. For nearly four decades, we’ve been skilled at turning promises into technological advancement. However, looking ahead, it’s evident that we’ll need to rely less on investor capital in the coming months, or even years. Revenue will need to come from actual products and services, not just slick pitch decks.

Down But Not Out

Exits are challenging in the current landscape, but I believe we’re approaching a time when strategic players and family offices could be looking to acquire some hidden gems. The climate is also ripe for roll-ups, whether in services, materials, machines, or a blend of these sectors. Anyone could assemble their own 3D Systems given the number of distressed yet viable companies available. Going public might be a steep climb for some—perhaps Formlabs could make a go of it? Further industry consolidation seems likely.

The idea of Markforged merging with a large machine tool manufacturer excites me; it’s a natural fit. A Formlabs and Markforged combination would also be complementary, adding unique strengths to each company. Additionally, market interest from corporations like Ricoh or Canon would be welcome.

Velo3D’s market cap stands at $189 million, with projected revenues of $100 million and approximately $20 million in cash reserves. Considering the intricate nature of the powder bed fusion market, this valuation could be seen as a bargain. The trend of rolling up services continues, and there are about a dozen firms currently in talks for venture capital deals ranging from $10 million to over $100 million. So while activity has decreased, it’s far from dormant.

Kilos and Sense

While there is ongoing activity in the 3D printing industry, it may not be sufficient to sustain our ecosystem long-term. Consider this: there are likely around 500 highly productive 3D printing manufacturing sites globally. What’s the demand for new software at these locations? If we generously estimate five licenses for two different 3D printing-specific software packages at each site, and charge $1,000 per license per month, this new market segment could be worth around $60 million a year. Mind you, this doesn’t account for the broader 3D printing software market, which includes CAD and tools like Magics. Even if this new software segment grows by 30% annually, it’ll take some time before it becomes lucrative enough to support a host of thriving companies.

For those selling post-processing or other specialized equipment in this market, the opportunities may be narrower than one might anticipate. Additionally, locating the right clients—who are both aware they need your product and are ready to buy—could prove challenging.

We Built it and they Didn’t Come

Despite advances, the 3D printing industry still lacks robust solutions for powder and materials management. Universities have yet to find comprehensive software that can efficiently manage multiple printers, and many companies still don’t have an effective internal version of Thingiverse. There’s also demand for printers that can automatically replace builds, from industrial-scale machines down to desktop versions. While there’s an abundance of PLA varieties, we’re still missing many industry-specific materials. In essence, we’ve been constructing tools and solutions for a theoretical future rather than addressing the industry’s immediate needs. This gap signals unexplored opportunities, offering a glimmer of hope for innovation and growth.

The Application I’m Most Interested in is is PayPal

I believe our primary focus should be on developing applications that have high criticality, volume, and profitability through 3D printing. Our technology allows us to fail fast and iterate rapidly, which means we’re well-equipped to develop a wide array of products. We can prototype multiple versions, refine them, and ultimately create products that perfectly fit market needs. We have the capability to produce niche items, unique solutions, and innovations that are unattainable through traditional manufacturing methods.

The key to not just surviving but thriving in this industry is to harness our equipment and expertise to create end-to-end applications. The user experience should be so seamless that with just a few button clicks and a payment, anyone can order a 3D printed part. In my view, this approach holds the promise of a revitalized future for both individuals and the industry at large.