April 17, 2018April 24, 2018Analysis The Amazon Dilemma Tens of thousands of 3D printers were sold on Amazon last year. Of those, the vast majority cost less than $700. The world’s largest online retailer has a stranglehold on the entry-level niche. What does this mean for the market? On the one hand, it is good in that it increases accessibility, drawing a large number of first-time entrants into 3D printing. Many of these individuals will go on to buy second or third machines with a higher price tag. On the other hand, it is slowly murdering US prosumer resellers. Most US resellers have never been well funded. During the boom, people were jumping in with less than $30,000 in inventory, a website, and no legitimate office space. Some of them were relatively successful and eventually grew to legitimacy, but most are now gone or in distress. Their business model has never been paying the bills by selling 3D printers. They make their money by selling a lot of filament at high margins. The printers, being sold at only a 25 to 35 percent retail discount, were merely a device to gain loyal filament buyers. Most channel partners have been buying filament from various suppliers for between five and eight dollars per kilogram for years, depending on quantity. They were selling it for between $30 and $40. Unloading a few hundred kilograms per month was a nice little business. Some were selling thousands per month and doing quite well. Now Amazon is stocking an enormous variety of filament ranging from deficient to high quality, starting at prices in the $12 neighborhood. Compounding the predicament is the fact that traditional resellers can’t carry entry-level machines because manufacturers racing to the bottom cannot afford the 30% discount. Meanwhile, large inventories can be stocked at Amazon, sold as FBA (Fulfilled By Amazon) with free Prime shipping, for 15% or less. It is the only outlet where low-margin printers can work. However, it is self-defeating. Today’s hot, cheap printer is next year’s antique. The Creality CR-10 exploded in 2017 thanks to marvelous YouTube reviews timed near Amazon availability and an absurd price tag. But, how much money is being made per printer by the manufacturer? It is like the old television commercials where the CEO tells the accountant they are going to start selling cheeseburgers for 99 cents. The accountant informs his boss it costs more than 99 cents to make the cheeseburgers and asks how they are going to earn money. The CEO responds, “Volume.” How is a US reseller supposed to survive in today’s environment? What are the ramifications if they don’t survive? Channel partners still fulfill a crucial role in the prosumer sector. What was known as personal 3D printing in 2013 has broken into three niches – entry-level, enthusiast, and prosumer. Entry level ranges from about $100 to $600. Enthusiast goes from $300 to $4,000. Prosumer pricing is approximately $700 to $6,000. The primary difference between the enthusiast and prosumer groups is marketing. The enthusiast segment is marketed to hobbyists, mainly a group of individuals who get as much pleasure from tinkering with their printers as they do printing models. They are similar to hot-rodders who enjoy tuning their cars more than driving them. While my description might sound less than respectful, there is plenty of cash to be made. The enthusiast segment goes through a lot of filament, purchases third-party upgrades and regularly replaces their equipment. RepRappers and open source fanatics command considerable purchasing power. The prosumer segment is marketed to professionals, especially K-12 education where growth is strong, and businesses requiring rapid prototyping or low-volume manufacturing. This niche is where resellers are most necessary. Amazon is incredibly good at selling inexpensive items, but when the price tag surpasses $1500, professionals often want to buy from someone nearby who offers service and support. Nobody wants to be responsible for a $2000 procurement mistake. How is it that MatterHackers thrives? There are multiple reasons, foremost of which might be funding. They stock an enormous inventory and have created an online superstore, comparable in variety to Amazon. They offer free shipping. They also produce what is probably the best content marketing in the entire industry and mix it with cult marketing. Thus, they appeal equally to enthusiasts and professionals. Other resellers like ProFound3D have succeeded differently. They purchase machines in bulk and maintain an extensive inventory, both in their facilities and in the Amazon warehouse. They frequently operate in that area between 15 and 35 percent – the difference between Amazon’s discount and a good reseller discount. Having acquired (or was it a merger, I’m not sure) Octave Systems recently, they gained a salesman with an industry track record and plenty of contacts in John Marello. Like MatterHackers, they offer free shipping (on orders of $99 or more). What do MatterHackers and ProFound3D have in common? They are both well-funded, and both offer some form of free shipping to counter Amazon Prime. The number of positive cash flow US prosumer resellers is dwindling. I fear we will see more disappear in 2018. How is the low-end professional market going to be served? Manufacturers catering to the niche must develop a plan to either aid resellers or invent a future that doesn’t require channel partners. The only other option is a US customer base that doesn’t mind paying $3,500 for a printer with zero local service and support. I’m not sure the buying public is ready for that, but it may have no choice.