The Three Market Laws of Additive Manufacturing

In the last article in this two-part series, I reflected on my tumultuous journey in the additive manufacturing (AM) industry and how that led me to understanding the dynamics of the market. Here, I’ll outline the three market laws of 3D printing based on this experience, before providing proofs and explanations for them

Market Law of Additive Manufacturing #1

A firm identified or perceived as a “3D printing company” will never achieve significant success in any market other than the 3D printing market.

The market expects only one of four things from an AM business—nothing else:

1. It will produce or sell 3D printers.
2. It will produce or sell 3D printing materials.
3. It will provide 3D printing services.
4. It will engage in other related activities within 3D printing, such as designing 3D models, preparing and optimizing models for 3D printing, creating 3D printing software, 3D printing training, 3D printer servicing, etc.

A business identified or perceived as an AM firm will have serious difficulties being seen as a regular user of the technology. Its attempts to change industries will be very difficult or impossible (i.e., they will always end in failure).

There’s no escape from 3D printing. If you’re in – you’re in.

Market Law of Additive Manufacturing #2

A successful company in the 3D printing industry will always be smaller and less profitable than a successful company in another industrial sector.

In other words, “the largest 3D printing company in the world” will always be smaller and less profitable than “the largest company in the world in injection molding, casting, machining, or any other related fields.”

Historically, AM technology was developed to create individual prototype parts relatively quickly and cheaply compared to other conventional manufacturing methods. In subsequent years of technological development, 3D printing began to be used for low-volume production of end-use parts.

Nevertheless, despite continuous development, at the moment AM will not replace high-efficiency manufacturing methods, remaining only a complementary technique where high-efficiency methods are more expensive or have longer production lead times. If this changes, this law will no longer apply.

3D printing is always the ugliest girl at the party.

Market Law of Additive Manufacturing #3

An increase in the value of the 3D printing market may or may not correspond to an increase in the value of the 3D printing companies that make up that market. Market value and company value are not correlated.

The number of firms in the AM industry is disproportionately large relative to the market’s value. As a result, at any given time, only a small number of companies are able to generate extra profit—most businesses operate at or below the profitability threshold. Thus, companies that create a growing market may lose value due to the lack of profits or returns on investments.

The 3D printed cake is too small for a big party.

Explanation

Market Law #1: A business identified or perceived as a “3D printing company” will never achieve significant success in any other market than the AM sector.

This can be a bit tricky because, first, we need to understand when a business is considered a “3D printing company” and when it is not. Let’s start with what’s obvious: manufacturers of 3D printers, filaments, resins, and 3D printing software are 3D printing companies. It gets more complicated when it comes to service bureaus.

According to my definition and understanding:

• A firm that provides AM services for other companies and individuals by taking their files and producing them is a 3D printing business.
• A company that uses 3D printers to produce on-demand own products, such as lamps, interior decor elements, toys, car parts, tools, phone accessories, etc., will be perceived as a company from the industry for which it creates products (i.e., lighting, home decor, toys, automotive, etc.). Such a company may have “3D” in its name and showcase AM as its main tool, but it will be perceived differently by customers.

Why is this important at all? Because for a company in the first group, transitioning to another sector will be either very difficult or impossible.

And why would a company want to do this? Because business is not doing well.  Because it has 3D printers, provides 3D printing services and discovers that it is unprofitable. It wants to change this by using the existing machinery to produce completely new things and enter a new market.

But that is no longer possible… Not under the current brand.

Example 1: For over a decade, Materialise has been executing phenomenal projects combining 3D printing and fashion, yet no one perceives Materialise as a fashion company.

Example 2: For several years, Materialise has been producing eyewear frames, but they do so as a contract manufacturer for other brands. Any attempt to create its own eyewear brand as Materialise would end in failure.

Example 3: For several years, Stratasys has been trying to implement full-color PolyJet technology in the fashion industry (“Fashion3D technology”) and automotive interior finishes, but with little success.

Materialise Fashion Week 2015

In each of the above cases, the market perceives these businesses as “industrial companies from the AM sector,” so they are either ignored or rejected by the target markets.

There are, of course, more examples. Let me give a fourth one—my own.

Example 4: GREENFILL3D tried to enter the advertising stand sector with its proprietary system of stands made from a material based on wheat bran, sourced from pasta production leftovers. Instead, from the very beginning, the market expected only two things from us: selling eco-friendly 3D printing materials and providing 3D printing services. The advertising market did not perceive us as a manufacturer of advertising applications, but as an AM company that could be contracted to do 3D printing. Nothing above that.

Market Law #2: a successful company in the 3D printing industry will always be smaller and less profitable than a successful business in another industrial sector.

Let’s start with understanding what 3D printing has to offer. 3D printing has three advantages and three disadvantages compared to any other manufacturing method:

✓ it is the fastest

✓ it is the cheapest

✓ it allows the greatest geometric freedom

✗ it has the poorest accuracy and finishing quality

✗ it becomes problematic as part size increases

✗ it is not profitable for mass production

The advantages and disadvantages interact and cancel each other out. This determines the usefulness and suitability of 3D printing for producing a given application. Perfect. Now, that we know this, let’s try to answer the question: when does a company buy a 3D printer, and why?

• When they want to produce a part quickly and cheaply
• The part is highly specific and difficult to produce due to its shape
• Quality isn’t a top priority
• The part is not very large
• They don’t need many of them.

To summarize: fast, cheap, and unique—regardless of quality, small size, and produced in one or just a few pieces.

• Would a company spend $100 billion on producing such things? Of course not.
• Would a company spend $1 billion on producing such things? Of course not.
• Would a company spend $100 million on producing such things? Of course not.
• Would a company spend $1 million on producing such things? Only if there’s absolutely no alternative and the part is extremely necessary.
• Would a company spend $100,000 on producing such things? Only if these needs occur frequently.
• Would a company spend $10,000 on producing such things? Yes, but first, let’s look for cheaper options.
• Would a company spend $1,000 on producing such things? Now, you’re talking!

No one will ever spend more on 3D printers than on other production systems—not until 3D printers can genuinely replace them. But even then, it won’t happen overnight. Why replace a working technology with a new one? Only if it’s actually much cheaper. Again, it comes down to money.

3D printer manufacturers are the producers of the cheapest available options. Even if a particular machine costs “millions of dollars,” the alternative solution would cost more. So, it’s still the cheaper option.

A manufacturer of the cheapest things will never be able to compete with a manufacturer of expensive things. And certainly not when their products are used to make things that are “fast, cheap, and unique—regardless of quality, small size, and produced in one or just a few pieces.”

Market Law #3 – 3D printing market value and 3D printing company value are not correlated.

I’m not sure there’s anything to prove here. The current valuation of most publicly traded companies speaks for itself. If we compare the chart of their value over the last 3-5 years with the chart of the 3D printing market’s value, we’ll see something inexplicable.

How is it that market leaders are losing value while the market is growing? Because there’s a shift happening in the background—new leaders are replacing the old ones. This has happened before. And before that, too. And you know what? It’s going to keep happening. Every five years, there’s a reshuffling. Leaders become followers.

Theoretically, the group of the oldest companies—the AM forefathers—remain in their established positions. But look at them. There are fewer and fewer. EnvisionTEC and ExOne have been absorbed into Desktop Metal, which will soon be absorbed into Nano Dimension.

The Big Fundamentals. How many are left?

When you look at a chart of the 3D printing market’s value and see it rising, that reflects nothing but the truth. But the value of individual firms has nothing to do with it. Some grow, some shrink, others die.

The Conclusion

According to the Second Law, a business in the AM industry will never achieve market success beyond a certain level “reserved” for companies in this market. Sooner or later, it will hit a glass ceiling, beyond which further growth will either be impossible or will require significant changes in the scope of its operations.

According to the Third Law, the strategy of “waiting out” a downturn or expecting “better times” is misguided. Market growth is certain, but it does not necessarily lead to an increase in the company’s value. This may happen, but it is not guaranteed. Moreover, history shows that the pressure from newly emerging firms in the market is so high that every five  to 10 years, there is a major reshuffling in the hierarchy.

Simultaneously, according to the First Law, the attempt to restart, that is, shifting the company’s operations from the “3D” sector to another sector, carries a high probability of failure.

All of this together does not mean that achieving success in the 3D printing industry is impossible—it is possible, but with certain expectations and more realistic goals. At this moment, the AM sector still has many limitations that effectively hinder “infinitely high growth.”

The Solution

When creating a new business operating in the field of AM, it is reasonable to set it up so that 3D printing is only a part of its offering—complementary to other manufacturing techniques, machines, materials, etc.

The successes of companies like Protolabs, Xometry, or Authentise clearly show that diversifying the offering across various manufacturing techniques guarantees profitability.

If the goal is to achieve “infinitely high growth,” confining oneself to the 3D printing bubble is not a good strategy.

The final statement

1. 3D printing as a technology is alive.
2. Customers for 3D printers are alive and there will be more of them.
3. The 3D printing industry as a whole is alive, growing and will continue to grow. Individual firms? It depends on the moment. Just as in quantum mechanics.

Images courtesy of the author.