The Rise of Open Source 3-D Printers

The 3-D printing industry emerged from its 30-year slumber in 2012 as if it suddenly realized the snooze button had been pressed one too many times. To the cheers of investors, cheaper hardware has combined with versatile software to push 3-D printers into wider manufacturing applications, and to the door of the home office. Mr. Market has responded by sending share prices of 3D Systems and Stratasys skyward. But has all the enthusiasm caused you to overlook one key trend? Are you taking the market leader status of these two companies for granted?

The results from a study on household 3-D printer use conducted last May by DIY researchers Jarkko Moilanen and Tere Vadén may surprise some investors. Despite having only 358 respondents it is the most detailed study conducted to date. Moreover, it highlights one important trend for investors: open source will play a big role in the future of the industry.

Here's how printer use breaks down by manufacturer, which I've updated to reflect the furious pace of industry consolidation:

Here is the same graph broken down by manufacturer type:

This blindside-competition raises many questions, so let this serve as a crash course on open source 3-D printers.

What's the deal with open source?
Open source 3-D printers have cut out an important niche with DIY enthusiasts - and therefore household printers - thanks to the expiration of dozens of tightly held patents. The consolidation occurring within the industry is, in a way, the result of patent expiration, too.

Ah, patents. They're my saving grace, right?
It's more intricate than that. Many companies have fallen into the dustbin of history clasping massive IP portfolios. That being said, it appears that the leading open source printers are in the clear. The recent Kickstarter darling Formlabs, a stereolithography 3-D printing company, may not be so lucky. By now you are probably familiar with the company's bout with 3D Systems. Formlabs cites the following expired patents to defend itself:

Source: USPTO

This list would seem to vindicate Formlabs if it wasn't for U.S. Patent No. 5,597,520, which references the 14 patents above, but doesn't expire until April 25, 2014. The pending lawsuit serves as a reminder that the impressive IP built and acquired by 3D Systems and Stratasys should not be taken lightly. Of course, the final decision must be made by a court.

Ok, so who is this RepRap you speak of?
RepRap is "humanity's first general-purpose self-replicating manufacturing machine." In other words, RepRap users are actually encouraged to print the parts needed to assemble and sell other RepRaps (functionality trumps aesthetics here). This is obviously not meant to be a profitable business model, but RepRap itself is not the direct threat to the current leaders' assumed dominance of the personal 3-D printer market.

Ultimaker and MakerBot, both spawned from the RepRap community, market Ferraris compared to their RepRap predecessors. They combine the open source ethos with sleek designs and leading functionality that has stumped even their deep-pocketed counterparts. In fact, Ultimaker won three Make Magazine awards: "Best Open Hardware," "Fastest," and "Most Accurate." By comparison, 3D Systems' Cube won one award for "Easiest to Use."

Think open source can't compete in industrial applications? In 2011 MakerBot enjoyed a sizable 21.6% market share for both industrial and home printers. The company's recently opened store in NYC aims to carve out a big chunk of the growing household market.

Can an open source business model really flourish?
That question has become a big concern of investors in recent years, but the success of open source software might provide some key insights. Consider this: In 2010 open source software made up 75% of the portfolios of the top 2,000 companies worldwide. That number is expected to leap to 99% by 2016.

The dominance of open source software - and emergence of open source 3-D printers - has been powered by the rising use of Linux. Red Hat , the top commercial Linux contributor and first $1 billion open source software company, has been the market's driving force in multiple arenas. For example, the company's partnership with Rackspace is pushing more and more cloud computing users to adopt open source projects - up to 64% in a recent survey. And, of course, everyone knows about Google which has built a $235 billion empire on the heels of its search engine. Big G's Android operating system (Linux-based) enjoys over 70% of the smartphone market.

Computers, the cloud, smartphones, and now 3-D printers are being transformed by selling products that flourish in the public domain. Simply put, open source makes your world better. So before you count out smaller 3-D printing companies like Ultimaker and Makerbot, just remember that a few short years ago we were using sites like AskJeeves and Lycos for searching the web. Google it if you don't believe me.

Foolish bottom line
Here at The Motley Fool, we believe it is Foolish to keep an eye on the competition. Ultimaker and MakerBot may be out of reach for the individual investor at the moment, but they are making plenty of noise. Are you keeping an open mind about the market leader status of 3D Systems and Stratasys?

The article The Rise of Open Source 3-D Printers originally appeared on Fool.com.

Maxx Chatsko has no position in any stocks mentioned. Follow him on Twitter @BlacknGoldFool to keep up with his writing on energy, bioprocessing, and emerging technologies.The Motley Fool recommends 3D Systems, Google, Rackspace Hosting, and Stratasys. The Motley Fool owns shares of 3D Systems, Google, and Stratasys and has the following options: Short Jan 2014 $55 Calls on 3D Systems and Short Jan 2014 $30 Puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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