In the first Godfather movie, consigliore Tom Hagen advises the Don, with regard to the Corleone family entry into the drug business that “If we don’t get a piece of that action we risk everything we have. Not now, but ten years from now.”
In a more savory context, SmarTech believes that something similar can be said of Stratasys’ recent acquisition of MakerBot. Our recent analysis suggests that revenues from 3D printers sold to “makers,” hobbyists and home users will be under $10 million this year and will not exceed $100 million until 2018. This hardly seems to justify the roughly $604 million value that the deal placed on MakerBot.
However, we think that Stratasys, like Tom Hagen, was thinking in broader and longer-term perspectives.
1. MakerBot offers Stratasys a clear path to an important new market: It’s not just about Stratasys selling personal 3D printers but rather about it becoming a supplier of scanners, software, and services too. In our recent report, SmarTech forecast that in 2018 alone, sales of all hardware, software and services to the “personal” 3D printing sector will be worth about $340 million growing to a whopping $3.7 billion by 2022.
These numbers don’t include materials, but are based on a fairly conservative adoption rate by consumers of 3D printers. Thus we do not think that 3D printers have to be the next CD players for the Stratasys + MakerBot to make financial sense.
2. MakerBot has done an excellent job in building its business so far: If Stratasys was on the prowl for a consumer-oriented 3D printing acquisition, it could not have done much better than MakerBot.
MakerBot is now usually considered to be the leading brand in the personal 3D printer space. It has been able to build on the open source achievements of RepRap, while adding proprietary control innovations of its own. MakerBot has also made powerful friends in all the right places. Ford is offering to give MakerBot machines to any of its engineer that wants one.
Nokia offers its smartphone customers the ability to download files for MakerBot printers. And Autodesk is working with MakerBot to develop authoring tools.
MakerBot is on a mission of education and consciousness raising with regard to personal 3D printing and so far seems to have done a good job in this regard. Stratasys now gets to tap into this success.
3. Stratasys + MakerBot is a relatively low-risk deal: Of course things could still go badly wrong with the deal. 3D printing may turn out to be a flash in the pan. Or Stratasys may be simply ill equipped to absorb the MakerBot acquisition; clashes of corporate cultures are always a possibility.
However, as these things go, this is a relatively low risk deal. Because this is to be an all-stock transaction and, in any case, about a third of the money is being paid to MakerBot as an earn out, Stratasys remains unburdened by a cash drain. In addition, because Stratasys knows as much about 3D printing as anyone, the deal requires less of a discount for technology risk than an acquisition by a 3D printing outsider might have been required to make.
Given all of this – and in the words of “The Godfather” once again (but this time of the Don himself)– it is therefore understandable why Stratasys was able to make MakerBot a deal it couldn’t refuse.