Six Manufacturing-as-a-Service Companies
Computer-aided design has been giving us digital twins long before the term became mainstream. The ability to design something digitally and then create it in the real world has been around for a while. What’s changed is the variety of materials and lot sizes you can choose from, and speed at which you can do it, thanks to technologies like 3D Printing (3DP). It’s something we now call “manufacturing-as-a-service,” and it’s big business for Protolabs (PRLB), the world’s fastest digital manufacturing source for prototypes and low-volume production parts.
The original promise of 3D printers was that soon we’d be printing things we need on demand with 3D printers replacing all other types of tools used to manufacture parts. This vision never materialized. Instead, the nomenclature changed over the years as the industry kept pivoting. It looks something like this:
- 3D printing bureaus – 3D printing shops are as ubiquitous as Starbucks and we print everything we need on demand.
- Distributed additive manufacturing or 3D printing as a service – a small number of companies offer 3D printing services
- On-demand manufacturing or manufacturing-as-a-service or manufacturing on demand – using an online platform to order parts using dozens of possible materials with no minimum quantity required, instant pricing, and rapid delivery.
We’ll use the term “manufacturing on demand” going forward since it best describes the value proposition.
Manufacturing on demand became the ideal business model for enterprise 3D printing without centering around 3D printing. It simply incorporated 3D printing as another tool to produce parts. Then, software programs allowed for instant pricing after which they would route the order to the most suitable manufacturer for each unique order while taking all kinds of things into consideration. Variables such as complexity, lot size, quality tolerances, and chosen materials all affect the choice of manufacturing method and location. Where the business models can differ is in who owns the manufacturing equipment.
Manufacturing on Demand “Light”
We’ve previously talked about how fragmented the manufacturing industry is with more than 19,507 machine shops in the United States alone. Think about how much time those machines spend not producing anything. Why not create a software solution that takes in orders and then farms them out to available machines? That’s precisely what startups like Xometry do.
Founded in 2013, Maryland startup Xometry has taken in just over $197 million in funding from investors that include Dell, BMW, T. Rowe Price, Bosch, and General Electric. The most recent raise was a $75 million Series E that closed in September and was led by T. Rowe Price, an asset manager that’s been making an increasing number of bets on startups. Just over a year ago, Xometry acquired another manufacturing-on-demand startup, Shift, which appears to provide bolt-on CNC machining capabilities.
Today, Xometry is competing with Protolabs without having to spend any money buying or leasing equipment. That’s because Xometry has a global network of 5,000 suppliers that produce parts as orders come in. Some of the startup’s investors were customers before they invested, like BMW, which uses Xometry to print rare parts as they need them – a virtual inventory of sorts. Rather than stock a spare part, it can be printed on demand and shipped directly to where it’s needed.
We first came across 3DHubs in a piece we wrote in May 2017 on 3D Printing and Distributed Additive Manufacturing. Since being founded in 2013, Amsterdam startup 3DHubs has raised $31.5 million in funding to develop an on-demand manufacturing model that allows you to compare pricing and lead times across 3D printing, CNC machining, and injection molding in a single window. They’ve now printed more than 5 million parts for a client list that includes Intel, Merck, Nissan, NASA, and Amazon Robotics.
Another company that’s also building parts for robots is Fictiv.
Founded in 2013, San Francisco startup Fictiv has taken in $58 million in funding from names that include Intel, Mitsui, and Bill Gates. That money has been spent building a highly vetted global partner network that’s now produced more than 10 million parts for more than 2,500 different customers. For example, Gecko Robotics has used the platform to print more than 900 custom robotics parts for their sophisticated industrial inspection robots. The Fictiv platform provides instant price quotes, or within one hour for complex parts. The choice of materials is broad, though 3D printing metals are conspicuously absent.
For customers, it doesn’t matter who produces the part as long as it’s up to specifications and competitively priced. For investors, it makes a big difference if the manufacturing is taking place in house or not.
Manufacturing on Demand “Heavy”
Companies that own the equipment can control all the variables in a closed-loop system where the maximum amount of big data can be produced to feed hungry machine learning algorithms.
The companies we’ve talked about so far don’t own any manufacturing equipment. Contrast this approach to the one taken by Protolabs, a $4 billion manufacturing-on-demand company which owns and operates all manufacturing equipment in house. While owning the equipment will certainly require more capital, it’s much easier to control quality and customer service when you’re doing the work. All aspects of production can be measured, and the resulting big data can be used to continuously improve the entire process.
Protolabs has been focused on increasing their ability to scale production over the lifecycle of a customer relationship, moving beyond just prototyping and low-volume production parts.
In September 2019, we asked, Is Protolabs a 3D Printing Stock Yet? The answer is that – at least for now – Protolabs is the only pure-play manufacturing-on-demand stock, but there are others dabbling.
This past summer, we wrote about A 3D Printing Stock With Diversified Business Lines and looked at Belgium-based 3D printing firm Materialise (MTLS), a $2.2 billion company that’s one of the original pioneers of 3D printing. The company’s largest segment, Manufacturing, offers 3D printing services to industrial and commercial customers, the majority of which are located in Europe.
Materialise operates 149 3D printers, six vacuum casting machines, and 20 CNC machines that produce both prototypes and production parts. They also developed Mammoth, their own proprietary stereolithography technology, which they use to print very large parts. Fifteen such printers produce parts for their clients.
In 2018, a $50 billion developer of software for 3D product design, simulation, and manufacturing threw their hat into the ring. French software giant Dassault Systèmes launched their e-commerce platform “3DEXPERIENCE Marketplace” which includes a network of 180+ manufacturers who offer more than 14,000 machines that perform 3D printing, CNC machining, injection molding, laser cutting, and sheet metal design. Earlier this year, Xometry became the first “prime partner” of Dassault Systèmes’ Marketplace which makes one wonder if some consolidation will be happening soon in this space. Here’s how Dassault positions their offering:
It connects the industrial ecosystem of Designers, Engineers, Buyers and Production planners with industrial manufacturing service providers such as Proto Labs, Xometry, Sculpteo and 3D Systems and FIT Manufacturing a lot more so you can be confident to find the best partner based on your project requirement.Credit: Dassault Systemes
Dassault seems to be adding another layer between the customer and the manufacturer, but perhaps they’re using this as an opportunity to vet the players in the field and figure out where they want to play. For investors, Dassault is so large that the current contribution to 2019 revenues of $4.86 billion is probably miniscule at best.
There are other large companies out there dabbling in manufacturing-as-a-service. France’s Sculpteo was acquired by BASF which appears to have some interest in this space. Siemens launched their Additive Manufacturing Network which isn’t focused on matchmaking but rather provides a “cloud-based solution to foster collaboration and process orchestration between engineers, procurement, and suppliers of 3D printed parts.”
Most of these companies are using two different business models; purchasing the equipment (heavy) or acting as a matchmaker for customers and manufacturing shops (light). Let’s compare two leading companies from both types.
Xometry vs. Protolabs
In May of last year, Forbes published a piece titled “Manufacturing Marketplaces Land Big Funding Despite Questions About Business Model” which coincided with a $50 million raise by Xometry. The article raised concerns around Xometry’s business model of connecting customers with suppliers. If a customer ends up establishing a relationship with a supplier, they can just cut out the middleman – in this case, Xometry. What manufacturing-as-a-service “light” companies end up becoming are directories of suppliers which provide price quotes to other people’s customers who want to make sure they’re getting a fair price.
Xometry is countering this threat by selling supplies to their suppliers and creating value around their software components which they hope customers can’t live without. It hardly seems sufficient, but investors seem to be convinced.
T. Rowe price published a piece a few years ago on their methodology for investing in startups where they talk about requiring “the same level of information and access that we get in public investments at a minimum.” Here we have a sophisticated asset manager that would have had all the data they needed to compare Xometry to Protolabs, then decided to lead a round of investment into Xometry (typically, being a lead means they’ve invested the most out of all participants).
There’s clearly a long-term strategy in place that both teams share and everyone is on board. It could involve further consolidation within the space, but let’s just hope it doesn’t involve a SPAC.
A company like Xometry could make an easy bolt-on acquisition for Protolabs. All they need to do is slowly start cutting off all the relationships with external manufacturing companies and absorbing the capacity in house. From a client’s perspective, the entire transition would be seamless.
As the largest manufacturing-as-a-service company out there, Protolabs is now seeing their growth slow. Then again, everyone’s growth is slowing these days, but you wouldn’t be able to tell by looking at the markets. We’re sufficiently convinced that manufacturing-as-a-service “heavy” is the way forward and think that Protolabs will come out ahead in the long run.
Out of all the 3D printing stocks out there, we’re holding just two in our Nanalyze Disruptive Tech Portfolio. Become a Nanalyze Premium annual subscriber and download our report today.