Economies of One – The 3D Printing Company Rewriting Economic Law

For additive manufacturing companies focused on low-volume and high-complexity, Protolabs is leading the way. Protolabs is the world’s fastest manufacturer of custom prototypes and on-demand production parts. Through technological innovation and customer service, the company is attempting to rewrite economic law by succeeding with an operating model dubbed the economies of one.

Since Henry Ford introduced the Model T, businesses that produce physical goods have lived (and died) by an eleventh commandment, the economies of scale: a proportionate saving in costs gained by a greater level of production. [1] Protolabs of Maple Plain, MN, is rewriting economic law through innovation in additive manufacturing (AM).

In the early days (~1980-2010), additive manufacturing (AM) attracted plenty of fanfare, as industry insiders called for an “Industrial Revolution 4.0”. [2] But businesses primarily used this new technology for high fidelity prototyping, as production was still very costly. [1][3] Over the past three years, however, more than $700 million in venture capital funding has poured into 3D printing, resulting in technology that is faster, functional, and affordable. [1]

For AM companies focused on low-volume and high-complexity, Protolabs is leading the way. Protolabs, is the world’s fastest manufacturer of custom prototypes and on-demand production parts. [2] The company offers production of low-volume 3D printed, CNC-machined, and injection-molded custom parts, serving the automotive, medical device, and consumer electronics market. [4][5] From 2010-2018, Protolabs understood that the sweet spot of 3D printing lay at the intersection of complexity and customization, and the company used this understanding to manage its own product development process. [2][4]

Today, Protolabs enjoys a competitive advantage in both hardware and software, separating itself from other 3D printing companies by offering automated design feedback, interactive cost estimates, free product-geometry analysis, and speedy turnaround times (less than 24-hours in some instances). [2][4]


Looking forward, Protolabs must respond to three product development megatrends: shorter product life cycles, the proliferation of the internet of things, and a shift to mass customization (personalization). [2][6] How Protolabs responds to these trends will likely drive the company’s performance over the next decade.

In the short term, Protolabs must meet demand from businesses with shorter product lifecycles. In 2017, Protolabs CEO explained that the product life cycle is in decline: “50% of annual company revenues are derived from new products launched within the preceding three years”. [2] As such, it is critical that Protolabs helps its customers beat their competitors to market by offering the quickest turnaround times on complex prototypes and parts. It is clear that Protolabs management is acutely aware of this need, and in November, 2017, the company announced the acquisition of Rapid Manufacturing, an AM company that specializes in quick-turn around sheet metal fabrication for prototypes and production parts. [7]

Also in the short term, Protolabs must find a way to play in the internet of things space. In a 2017 newsletter, Protolabs CEO stated: “IoT will have a potential economic impact of up to $6.2 trillion by 2025 and the potential to drive productivity across $36 trillion in operating costs across multiple industries, including manufacturing.” [8] By investing to become a ‘total solution’ for the supply chain, Protolabs is in prime position to take advantage of the IoT wave by differentiating itself from both traditional manufacturers, who operate in the low-mix high-volume space, and from AM competitors, who primarily focus on a single part of the supply chain. [2][8]


In the medium term, Protolabs must address the product development shift from a mass production model to a mass customization model, as companies globally attempt to serve consumers who value personalized products. A recent Boston Consulting Group report found that from 2018-2023 demand for customizable products will spur approximately $800 billion to move from existing players to the 15% of companies that invest and own this emerging segment. [2]

In considering steps Protolabs can take to best position itself for the next decade, I would encourage management to speak with UPS’ Vice President of Corporate Strategy. UPS sees additive manufacturing as a supply chain solution. [1] After reviewing its Critical Service Parts logistics business and identifying over one thousand warehouses dedicated to this type of part, UPS has been vocal about the value in being able to quickly produce highly specialized parts on-demand. [1] I would encourage Protolabs to also explore installing production units close to or even in-house for major customers, as AM could face competitive pressure from major logistics companies shortly. [1] Starting a dialogue with the major logistics companies now only seems additive, especially as these interactions could lead to possible M&A opportunities down the road.

An interesting question that arises when examining Protolabs’ business, (and AM at large), is: can a 3D printing company succeed in the long run without scale? Small job shops can still be profitable in today’s ecosystem, but because AM requires intense R&D and capital investment, the businesses that win may be the businesses that scale faster. Further, as many technology patents are already starting to expire, another interesting question is whether any 3D printing business is truly defensible in the long run? [1]


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[1] Alan S. Brown, “Chain Reaction: Why Additive Manufacturing is about to Transform the Supply Chain,” Mechanical Engineer: The Magazine of ASME (September 2018): 30-35.

[2] Protolabs, “Analyst Day Presentation,”, accessed November 2018.

[3] Dennis Spaeth, “3D Printing is Changing the Face of Multiple Industries,” ECN: Electronic Component News 61, no. 9 (October 2017): 21-23.

[4] Protolabs, “Who We Are,”, accessed November 2018.

[5] Hollie Slade, “How Proto Labs Is Building the Factory Of The Future,” Forbes Magazine (October 2014),, accessed November 2018.

[6] Protolabs, “The Growing Impact of IoT: How the Internet of Things is Automating the World,”, accessed November 2018.

[7] “Proto Labs Reaches Agreement to Acquire RAPID, Expands Services with Sheet Metal Fabrication,” Business Wire, November 21, 2017,, accessed November 2018.

[8] Sarah Goehrke, “Protolabs’ Greg Thompson Discusses 3D Printing In Operations and Production,” 3D Printing Media Network, October 2018,, accessed November 2018.


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Student comments on Economies of One – The 3D Printing Company Rewriting Economic Law

  1. In response to your question about whether 3D printing can succeed in the long-run without scale, there are two major additional cost item that greatly benefit from being spread across higher volumes of production, in addition to R&D and upfront capital investments that you highlight. The first is labor — specifically as it relates to the labor required for pre- and post-production processes, which can make up a large portion of total production costs [1]. The second is the time and resources required to scan and upload the product/part design using CAD to create a printable image. Since this takes time for each unique product/part, but the model can be retrieved from 3D databases without any added cost for production for subsequent units once created, there are clear benefits to scale in developing the initial 3D model “set-up” costs to be spread across a larger volume of units [2]. With these additional cost buckets taken into consideration, while it is still accurate to categorize AM as having lower requirements for minimum efficient scale of production, the benefits of scale should not be underestimated.

    [1] J.B. Roca et al., Getting past the hype about 3-D printing. MIT Sloan Management Review 58, no. 3 (Spring 2017): 57–62.
    [2] M. Holwef. The limits of 3D printing. Harvard Business Review Digital Articles (June 23, 2015).

  2. I was fascinated by this idea of scaling by custom capacity vs. scaling in the traditional sense. My first thought when reading about the supply chain and logistics portion was about the uses in the manufacturing industry to reduce inventories required to be held by companies, and to produce on-demand replacement parts for the forseeable future. As a specific example, many auto- and part-manufacturers have to fabricate and maintain a large inventory of spare parts long after the production of a vehicle is complete. It will also support a large but niche industry in restoring classic cars and modifying/customizing hobby cars. For the large-scale auto manufacturers, though, reducing inventory and thereby reducing costs by using AM will make a fantastic case that supports this business model of scaling up 3D printing capacity [1].

    [1] “How 3D Printing is Redefining Auto Manufacturing”, Article by Gill Devine, Manufacturing Global, July 7, 2017,

  3. Fascinating area! I’m interested in exploring what are the main barriers for increasing the scale of AM. There seems to be a technical dimension to the barriers, where the flexibility of material deposition is a constraint to the speed by which a certain component can be build. Additionally, size of the actual component may be a factor. What do you think are the managerial or economical constraints?

  4. Enjoyed reading the article – very interesting to see how the manufacturing business’ priorities are shifting as they move from traditional manufacturing to AM. I completely agree with the question you raise regarding defensibility as patents expire. As the product becomes more commoditized, I wonder whether the way to differentiation may be the service that forms part of the overall value proposition. You already touch upon a couple of areas in this regard, particularly turn around time and the overall customer experience. I can imagine cost and overall reliability of the product will also play a role. Lastly, another way scale may be helpful (beyond operating leverage for R&D and capex) is negotiating power vis-à-vis suppliers for raw materials (e.g. resins) which may play into overall product cost.

  5. While scale is required for AM companies that want to cater to large corporations, I don’t believe scale is a necessary requirement in order to succeed in the 3D printing business. As long as the end goal is not global market share, small 3D printing shops can still remain profitable as long as they maintain their quality standards, customer service, and reliability. With thousands of companies starting off each day, there will always be a need for small AM companies that can cater to these new businesses, whereas someone like Proto Labs might not want to service such a small deal. Although I agree that for Proto Labs, scale might be their end goal, they should be careful in scaling their business too fast at the expense of quality and of their reputation. I think short term they should continue focusing on their excellent customer service and quality while allowing for an organic growth rate to their business.

  6. This was a great introduction to how 3D printing companies can survive, by capitalizing on their main competitive advantage of speed. I believe Proto Labs is definitely targeting the right market currently, going after customers that truly value the customizable nature of rapid prototyping.

    However, I do share many of the concerns that you laid out in your questions:

    1. High R&D costs: While 3D printers do rely on software to switch quickly between manufacturing different products, there is still a lead up cost regarding agreeing on the correct schematics for the product, getting the right quality/ size printer, and sourcing the necessary materials. Because the contracts are likely to be smaller, the overall cash flows of the company will experience higher volatility than a traditional manufacturer, and I worry how Proto Labs will finance a large portion of its capital expenditures, especially since there are insignificant labor savings1. Their business model necessitates that they attract a large, customer base with expensive, highly customized demand, and it is unclear if that market can match up to their investment schedule, especially since the 3D printing space is undergoing large technological transformations, and it’s easy to be left behind by new innovations. Hence, managing cash flows will become a first order concern for a company that sees its strength more in technology.

    2. Production flexibility: If the end goal is the fastest turnaround time possible, then Proto Labs really needs to be a one-stop shop for their customer with regards to creating the final product. However, one clear limitation of 3D printing has been the types of materials that printers can actually utilize. Presently, plastic is still the input of choice for the vast majority of printers, but when it comes to highly customized products, there may be a needs for a greater variety of components, including glass, cloth, and other materials that are presently still incompatible with 3D printing. As the industry advances, these barriers will like reduce or disappear, but in the medium term, Proto Labs needs to find a delicate balance with satisfying customers, but working with a still-limited technology set.


    1. Source 1, properly cited:

      1. Holweg, M. (2015, June 23). The Limits of 3D Printing, Harvard Business Review. Retrieved from

  7. Great article. I agree with you that R&D investment is critical to AM companies. If you look at R&D spending of Proto Labs: it was $9.1 million in 2012, and $8.4 million in the first three quarters of 2013 alone [1]. However, without scaling, there are two additional options Proto Labs can consider to reduce the financial pressure from R&D investment:

    First, request the R&D Tax Credit: Enacted in 1981, the Federal R&D Tax Credit allows a credit of up to 13 percent of eligible spending for improved products and processes. Companies willing to take part in the imminent 3D printing revolution are eligible for these tax credits [2].

    Second, concentrate on serving a few select larger companies only (e.g. industrial companies). This will reduce the costs associated with variabilities of orders, such as change-over and customization cost, and enable Proto Labs to earn a higher margin. One drawback of this option, however, is the risk of over-relying on certain clients due to lack of diversification.

    [1][2] Gary Savell, Andressa Bonafe, and Charles Goulding, “The R&D Tax Credits and the U.S. 3D Printing Initiative,” R&D Tax Savers, 2013,, accessed November 18, 2018

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