Transitioning from Closed to Open Materials: Boosting AM Adoption in Production and Sparking Innovation

Recall those old ink cartridges that were pricier than the printer itself? This is somewhat mirrored in the 3D printing sphere with a similar “razor-razor blade” model, where a big chunk of the Original Equipment Manufacturer’s (OEM) profit is sourced from exclusive materials sales. Recently though, we’ve noticed a changing trend as more corporations are embracing open materials.

As we see 3D printing progress from a prototype testing phase to actual production grounds, a transformation into additive manufacturing takes place. The upscale material volume required for production environments brings excessive emphasis on material costs. These costs often become barriers for further adoption of Additive Manufacturing in high-volume scenarios.

The closed ecosystem hinders imagination by preventing users from discovering potential materials beyond the manufacturer’s set offerings. The desire among Engineers and Designers to tap into specialized materials featuring unique properties is undeniable. These could be conductive filaments for printed electronics, biocompatible resins for medical instruments, or high-performance thermoplastics for aerospace uses. Encouraging printer accessibility for material developers greatly fast tracks innovation.

Given this, what kind of influence will ‘open materials’ have on the OEMs?

When looking at Stratasys, a leading player in the Additive Manufacturing market, it’s noticeable that around 35% of its revenues, which equates to more than $200M per year, come from materials. These materials are estimated to bring in over 40% of the company’s gross profit, around $100M – $120M. Now, with Stratasys opening up to ‘open materials’ for some printers, many wonder about the potential negative effects on the company’s profitability, especially given the fact that Stratasys currently isn’t profitable, having experienced an operating margin loss of $73M over the past year. The question remains, can the company weather this potential financial storm? Alternatively, could the proposition of open materials drive enough additional printer sales to balance out these losses and possibly even reduce some of its R&D expenses? Stratasys spent around $88M over the last year on R&D, with a substantial portion of that likely dedicated to materials development.

There are some potential benefits associated with open materials:

1. Increase in machine sales within production environments: Even though these environments can put a strain on prices, they are usually more inclined to buy multiple printers.
2. Sales to research-based customers who are keen to experiment with new materials could lead to an increase in machine sales due to these newly developed materials.
3. Potential “indirect” material revenues. For instance, by receiving a share of the revenues from “certified” materials supplied by third-party vendors.
4. Income from the sale of open materials licenses: For example, Stratasys offers an open materials license for the FDM Fortus 450 printer for approximately $12k a year (or a one-time fee of around $80k for a perpetual license).
5. The development and testing of materials could pave the way for new revenue streams.

But can these advantages offset the drop in the materials revenue stream? It’s crucial to note that this stream of income is recurring and more stable, not to mention more ‘recession proof’ compared to printer revenues.

The key is likely to not give up on the materials revenue stream altogether, but compromise on the margins by offering more attractive materials pricing to keep the customers buying from the OEM, especially for high-volume customers (e.g. offer volume discounts); and in addition, leverage ‘open materials’ to create specialized materials that otherwise would have taken the OEM significantly longer time to develop, if at all.

That said, the legacy AM OEMs, such as Stratasys and 3D Systems, are likely to experience at least a short term negative impact by enabling ‘open materials’ either way, which will likely manifest in their share prices.

By contrast, emerging OEMs, especially those targeting industrial settings ‘off the bat’, are exempt from the ‘self-disruption’ concern and are planning their business models in accordance with these production environments.

Let’s take Tritone, an Israel-based metal AM company, as an example. Tritone, which has a sinter-based technology targeting high-volume production of metal and ceramics parts, is heavily focused on production environments. The company does sell materials directly – materials tested and qualified on its printers – while in parallel also selectively working with customers 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. Photo 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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