Todd Grim $5k Price Point
For the average home user, there are two tenets: affordability and simply, rock-solid performance. The problem is that these characteristics are at odds with one another when expenses are spread across low production volumes. With this in mind, I regret to say that the dreams of sub-$500 3D printers in every home won’t be realised any time soon.
Instead, prices will rise.
While consumers may be disappointed, corporate users will have cause to rejoice. The consumer-class 3D printers will be a catalyst to lower prices in the professional market. What we will see is the development of the prosumer market with a price point of $5,000.
The sub-$1,000 3D printer market won’t disappear, but the real action will be in the $5,000 range. I’m not omniscient; I’m just observing a current trend and applying long-standing economic principles.
Progress has a Price
There are many facets to my prediction, but the key driver is the fact that product development, product support and business operations cost a lot of money. Those expenses must be recouped with a sizable profit upside.
For the most part, the flood of consumer-class systems has popped up because they ride the coattails of early technology innovators and the collaborative masses participating in the open-source development of 3D printers. This free R&D dramatically lowers the barriers to entry.
With little or no cost for R&D, it is simply a matter of grabbing open-source designs and code and tweaking them to differentiate the 3D printer by adding some bells and whistles. Next, source components, many of which are off-the-shelf. And finally, invest in a logo, website and some rudimentary manuals. Voilà, a business is born.
With this business model, there is profit in a $500 or $1000 printer, if orders follow.
But in an over-crowded market (honestly, do we need three dozen low-end 3D printer companies?), those orders may not materialize. So expenses mount, cash flow suffers and profits become elusive.
What’s a cash-strapped startup to do? It can either differentiate by being a price leader or by offering a superior product with superior support. However, superior doesn’t come easily or cheaply. That is why prices will rise and why the consumer-class machines must go upmarket.
While many have and more will try to differentiate on price, the outcome won’t be pleasant. The consumer market is too small, presently, to offer the economies of scale that decrease cost of goods and distribute fixed costs over high unit sales. Without 12 million 2D printers purchased per year, do you really believe HP, Lexmark and Canon could sell them for less than $100?
As I stated earlier, I am not omniscient, just observant.
I submit into evidence: 3D Systems, MakerBot and Formlabs.
- 3D Systems launched the Cube with a $1,300 price tag. The latest generation, CubeX, sells for $2,500 to $4,000.
- MakerBot’s first product, the CupCake, launched with a price tag of $1,000 that later fell to $450. Next up, the Thing-O-Matic kit came out at $1,200. Then the Replicator launched with a $1,750 price tag, and the latest incarnations, the Replicator 2 and 2X, now sell for $2,200 and $2,800, respectively.
- Formlabs, which didn’t have the benefit of free, open-source development, will launch its Form1 with a $3,300 price.
What makes these 3D printers different, and why are they priced so high? There are three very good reasons:
1) Product Advancement
Just look at them. The stylish designs and custom cabinetry is much more expensive to develop and manufacture than unsightly laser-cut panels. Under the hoods, I’d be surprised if the bulk of components are sourced from an industrial supply catalog. To drive these 3D printers, the three companies have also invested in software development. While the apps may have their roots in open-source code, the software is improved and the user interface is clean, simple and polished.
What we can’t see, but buyers will experience, is the investment in product documentation, support staff and a business infrastructure that move these companies from a garage operation to a real business.
The claims of “professional-grade” create expectations. To meet those expectations, investments must be made. Commercial users don’t have time to fiddle with a temperamental peripheral. They demand results, and they expect quality — in the parts, the machines and the backing organisation — that cannot be compromised.
That requires R&D, manufacturing prowess and a well-run organisation.
3) Mousetrap Fallacy
Contrary to the idiom “Build a better mousetrap and the world will beat a path to your door,” a great product will not be a great success without an investment in sales, marketing and distribution channels.
For this reason alone, most of the consumer-class 3D printer makers will fail. If the world doesn’t know about your mousetrap and what makes it different, sales will be dismal. So, significant investments are required.
The named companies already have product in $2,220 to $4,000 price range. What will take them to $5,000, and what will bring professional 3D printers to same price point?
For the consumer-class systems, the professional market is alluring, as shown by the “professional-grade” add-on to product descriptions. Simply put, it is a matter of working smarter, not harder.
I’ll start with finances. On average, products have a 50% to 66% gross profit margin. I’ll use 50%. For every $5,000 3D printer sold, that is a $2,500 gross profit. A $500 3D printer yields $250 gross profit. So, a company would have to sell ten times more $500 3D printers for same gross profit —and far less net profit due to the added expense to sell, inventory, and manage. That means more work for less money.
Another factor is repeat business. Consumers will buy just one 3D printer and consume $250 of material per year. For businesses, there will be multiple 3D printers consuming four times more material per machine. Repeat business to an established customer is far more effective and much less costly than a one-off opportunity, as any sales and marketing professional will tell you.
For these two reasons, there is more money and bigger opportunities in the commercial segment. That’s why consumer-class machines will go upmarket.
Now, for the other side of the coin.
As consumer-class 3D printers go upmarket with a lower price point, there will be competitive pressure on professional-class machines. If the two are easily differentiated, commercial prices can remain stable. But as the consumer-class adds more features and capabilities, the differentiation gets smaller so buyers cannot justify a price disparity.
In response, the entry-level, professional- class machines come down in price to remain competitive.
My projected $5,000 target is somewhat arbitrary. It just feels right considering that the past price milestones were $25,000, $15,000 and $10,000.The unknown factor that will define the prosumer price point is price elasticity: the market response to changing prices.
If a 50% price drop doesn’t produce more than double the sales, it is a bad decision. On the other hand, if a 100% price increase leads to a 50% decline in unit sales, that’s a bad decision, too. Ultimately, price elasticity will dictate where the prosumer market falls in the $3,000 to $7,000 range.
While the prosumer market will be at the center of many 3D printer manufacturers’ business plans, the consumer market will continue to chug along. There will be low-cost options, but they will lack the quality, polish and features of their prosumer counterparts. But the dreams of a $100 3D printer will go unmet in any form other than a child’s plaything. As for the $20,000 to $1 million professional market, it will continue to be the choice of demanding professionals with demanding applications.