Transiting from a Closed to Open Material Ecosystem: Accelerating AM Adoption in Production for Innovative Breakthroughs

Do you recall those aged ink cartridges that were pricier than the printer itself? The model of 3D printing industry has been somewhat familiar, famously known as the “razor-razor blade” model, where the lion’s share of OEM’s profits was garnered through the proprietary material sales. Lately, a major shift in this trend is becoming evident as more and more firms are embracing open materials.

As 3D printing moves from being a prototyping ground to integrating into production environments, transforming into additive manufacturing, the need for materials drastically increases. This leads to a highlight on the aspect of material costs which at present often presents itself as an impediment for AM’s wider-prevalence in high-volume environments.

Apart from this, the restriction of a closed ecosystem also stifles novelty, depriving users the access to a potentially vast pool of materials outside the manufacturer’s selected offering. For instance, engineers and designers often require access to specialized materials containing specific properties like conductive filaments for printed electronics, biocompatible resins for medical apparatus, or efficient thermoplastics for applications in the aerospace sector. Permitting material developers to have open access to printers significantly quickens the pace of advancements.

Bearing all these facts in mind, it is interesting to ponder over the potential impact that ‘open materials’ would have on OEMs?

Stratasys, the leading player in the Additive Manufacturing sector, gets approximately 35% of its revenues (>$200M yearly) from Materials, which is estimated to represent more than 40% of its gross profit (~$100-120M). Worries about hit to profitability arise as Stratasys begins offering ‘open materials’ for chosen printers, considering it already experiences unprofitability, with operating margin at ($73M) in the preceding annual period (TTM). The associated question is- can it afford this possible ‘hit’? Alternatively, will open materials stimulate enough added printer sales to balance and even curtail some of its R&D spend ($88M in TTM, a significant part of which is possibly dedicated to materials development)?

The primary benefits from open materials are:

1. Improving machine sales in production settings- Despite price pressures, these settings are more likely to buy several printers.
2. Sales of machines to research customers keen on new materials development. This could, in turn, lead to additional machine sales propelled by these materials.
3. Making “indirect” material revenues possible, for instance, through earning a commission off “certified” materials from 3^rd party materials vendors.
4. Income from open materials licenses such as Stratasys’ open materials license for the FDM Fortus 450 printer, which goes for approximately $12,000 yearly (or around $80,000 for a perpetual license).
5. New sources of income from services related to materials development and testing.

The question to ask is: Will this be enough to balance the downturn in materials revenue, a stream that is recurrent, more stable, and apparently more ‘recession-proof’ than printer revenues?

The trick may be to not completely abandon the revenue from material sales, but to adjust the profit margins by proposing more appealing materials pricing to retain customer purchases from the original equipment manufacturer (OEM), especially for customers with high volume purchases (for instance, offering bulk discounts). Moreover, utilizing ‘open materials’ to produce specialized materials that would have taken the OEM a significantly longer time to develop, if possible at all.

However, legacy additive manufacturing OEMs like Stratasys and 3D Systems are expected to face a temporary negative effect from enabling ‘open materials’, which is likely to be reflected in their stock prices.

In contrast, emerging OEMs, particularly those targeting industrial settings right from the start, are not affected by this concern of self-disruption. They are designing their business models in line with these manufacturing environments.

Take for example, Tritone, a metal additive manufacturing firm based in Israel. Tritone, with its sintering-based technology aiming at high-volume production of metal and ceramic parts, has a strong emphasis on production settings. The company does sell materials directly – materials tested and approved on its printers – while also selectively collaborating with clients on specialized materials development.

Fraunhofer IFAM, Germany’s leading research institution, with collaboration from MIMplus, has used Tritone’s printer to develop its Inconel 317C metal paste, a material used in applications such as aerospace turbine blades, gas turbines and reactor vessels. Tying into the previously-mentioned ‘upsides’, this material could potentially drive Tritone sales in aerospace, power generation and chemical processing industries, creating a “win-win” situation.

To summarize, open materials are important for the AM industry to drive wider adoption in industrial setting, as an outcome of reduced material prices (competition-driven) and/or as an outcome of accelerated material innovation, allowing more applications.

The legacy companies will likely struggle to manage the short-term financial hit and will be more cautious, while the emerging players for this from the get-go and position themselves well with production customers.

Feature image: Parts made by Fraunhofer using Tritone printers with Inconel 317C. Photos source: https://www.linkedin.com/feed/update/urn:li:activity:7135160440484962305/

Startup advisor Tali Rosman will be participating at the upcoming Additive Manufacturing Strategies business summit in New York, February 6 to 8, 2024. Rosman will be moderating “Panel 2: Workflow Software for AM.”

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