MATERIALISE: SUPPORTING THE 3D PRINTING

REVOLUTION
APRIL 2013, LEUVEN (BELGIUM) Sitting behind his desk at the headquarters of
Materialise, the company he founded and still led as CEO, Wilfried Vancraen
reminisced about the exciting last few years. It had taken 20 years to lead the
company from pioneer in 3D printing technology to the ultimate industry
accolade, the receipt in August 2011 of the RTAM (Rapid Technologies &
Additive Manufacturing) Industry Achievement Award at the RAPID1
Conference & Exhibition in Minneapolis for the extensive contributions the
firm had made to additive manufacturing. This most prestigious award
recognized exceptional contributions and accomplishments through the
application of additive manufacturing technologies. With considerable humility,
he recounted the achievements of the company he had launched in 1990 and its
contribution to additive manufacturing, sometimes also known as 3D printing:
In 1990 the technology was at a very early stage; at the time we bought our first 3D
printer, there was only one producer with one type of machine and one material the
machine could process. Needless to say, applications were limited. We did not have
sophisticated solid modeling (3D) software for computer-aided design (CAD). So our
early research focused on improving those crappy 3D models so that they could be
processed by our 3D printer. In a way, the machines were better than the models. In
parallel, we started research in medical imaging, which alongside additive
manufacturing and digital CAD, became the third pillar of our core competences. It was
only when we mastered those three competences that we really started to add serious
value to the whole value chain of 3D printing.

Johan Pauwels, senior vice president at Materialise and one of the key people
who started the company with Vancraen, added:
It took us 20 years to invent the Mammoth, the biggest 3D printer in the market
equipped with our own 3D printing technology. We also became the market leader in 3D
printing software. The combination of the two puts us at the heart of hundreds of
innovative 3D printing applications in different sectors, in particular med tech, making a
positive impact on human lives through our orthopedic and cranio-maxillo-facial
implants. We keep advancing the 3D printing technology, not with the aim of winning
awards but to respect our mission statement: contributing to a better and healthier
world.

3D Printing is just Cooler...

1 The RAPID Conference & Exhibition is the industry-leading forum for the presentation and
discussion of the latest developments, trends and techniques specific to additive manufacturing,
rapid technologies, 3D printing and 3D imaging.
Rapid prototyping, rapid manufacturing, additive manufacturing, freeform
fabrication, layer by layer manufacturing, etc. were all terms variously
associated with the 3D printing world, although “additive manufacturing” was
the only official standardized terminology2 of the sector. The process consisted
of joining thin layers of materials to make real objects from 3D models, usually
layer upon layer, as opposed to subtractive manufacturing methodologies, such
as traditional machining (refer to Exhibit 1). In practice, 3D printing was really
a subset of additive manufacturing and referred to a specific technology within
the many available to operationalize additive manufacturing. Despite the
standardization efforts, 3D printing gained wider popularity as a generic term as
it was probably “cooler.”

The 3D Printing Dream... or Was it an Hallucination?

The year 2012 truly marked the entry of 3D printing on the world stage. The
British magazine The Economist started the hype with a title that caught
people’s imagination: “The 3D printed world – three-dimensional printing from
digital designs – will transform manufacturing.” Bloomberg Businessweek
followed on its coat-tails with an article entitled “3D printers – Make whatever
you want.” The world’s eyes were suddenly contemplating the next truly
disruptive technology. But as is all too often the case, it was difficult to separate
hype from reality.
3D printing potentially brought amazing value to the market:

• The impossible made possible: 3D printing, with its layer by layer process,
allowed the creation of complex parts that could not even be built using
conventional manufacturing processes.

• Customization and comfort: 3D printing allowed the creation of truly

personalized products with extreme precision. For example, the level of
precision achieved allowed the production of customized hearing aids and
dental implants tailored to a customer’s exact needs. This opened the world
of mass customization to extreme precision devices.

• Cost reduction: 3D printing helped reduce the high costs of traditional

product development processes and of the production processes themselves.
The minimal efficient scale (MES) of production was essentially reduced to
about one.

2 Terminology set by the ASTM International Committee F42 on additive manufacturing

technologies.
• Ecological: 3D printing often significantly reduced the weight of key parts
while preserving their required rigidity. At the same time it reduced scrap
because 3D printing added material progressively in the exact quantities
needed to form a final product, unlike traditional manufacturing processes,
which removed material to shape the final product.
Despite these clear virtues and the press hype, the 3D printing market did not
exceed $2 billion in total in 2012, including all 3D printing ecosystem players
(refer to Exhibit 2). In other words, the 3D printing dream was barely starting
to become a reality; significant technological and commercial hurdles still
prevented the full capture of its potential value.

The Genesis of Materialise

With a biomedical engineering degree capped by an MBA, Vancraen could have
pursued high-potential careers in both research and business. He elected to start
his professional life working for a research institute at the Katholieke
Universiteit Leuven (KUL) analyzing investments in computer integrated
manufacturing (CIM). In 1989 that job put him in front of one of the first 3D
printing machines in Europe at a German research laboratory. With his
extensive knowledge of manufacturing, Vancraen was instantly fascinated by
this new technology and the potential such a machine had to revolutionize the
industry.
Back home, he immediately called the director of his research institute and tried
to convince him to invest in this massively disruptive technology. Without
sufficient budgets of his own, the director encouraged Vancraen to try to raise
money directly from industrial clients. That seemed to be the only way to
acquire such a machine and start experimenting with it. With that stamp of
approval, and more persuaded than ever that the technology was the basis of a
seismic shift in manufacturing, he started contacting the research institute’s
industrial clients. While they showed a general interest in the concept, they
were more interested in the “fruits” (prototypes) the machine could produce
than on the research about it. Unfortunately, the research center’s vision, as the
name implied, was really fundamental research, not turning research into
prototypes. At this point Vancraen shifted gear and put his business skills into
action:
I reflected a lot about the next steps. I knew the limitations of the technology and I knew
that if I did it alone I would not be able to balance the two activities needed to sustain the
business: delivering work to clients and improving the technology. The only viable
solution was to create a company and keep the research center as a main partner.
With plenty of enthusiasm but little else, Vancraen produced a first business
plan to roll out that vision and started looking for the money. A creative
combination of resources from the research center, family, bank loans and a few
industrial partners permitted him to acquire the first 3D printing machine. The
machine was hosted at the research center (which effectively owned 49% of the
project) – and Materialise was born.

The Early Years

After its laborious birth in the cellars of the KUL Research Center, Materialise
focused on the few niches in which 3D printing technology, despite its
limitations, could generate the most visible value-added immediately. This
would hopefully allow it to not only survive initially but also quickly find some
growth markets. The only viable business at first was prototyping services for
industrial clients, and this was where the company started operating, and it was
still a profitable line of business in 2013. Materialise signed two exclusive
contracts with Alcatel-Bell and Agfa-Gevaert, securing a base load of activity
for the company. In parallel, Vancraen started thinking about expanding the
company’s activities to the medical sector, a more ambitious and promising
second field of activity but one that was still fraught with limitations. To
alleviate these, Materialise exploited its close relationship with the KUL
Research Center to develop the needed improvements. It focused immediately
on the three most prominent areas: additive manufacturing, digital CAD and
medical imaging. These three areas remained the core competences and the
backbone of Materialise’s activities until the end of 2013 (refer to Exhibit 3).
Pauwels explained:
The company was positioned as a 3D printing service provider (or service bureau),
which pushed us to reinforce our #1 core competence – additive manufacturing.
Additionally, 23 years ago [in 1990] Windows did not exist, it was still DOS with
maximum 2MB of RAM so considerable efforts were needed to improve the software,
which gave birth to our #2 core competence: Digital CAD (i.e. software development).
And because we noticed the potential of the 3D printing in medical applications, we
started working with medical imaging, which is a critical part of the medical value chain
and became our #3 core competence.

Materialise’s approach was purely opportunistic. In addition to its prototyping

activities, it began noticing that the software tools it was developing for in-
house use were also becoming popular with its competitors in the market. So it
decided to improve the software and commercialize it in 1993. This gave birth
to its Magics product line.3

3 By 2013, Materialise’s software business employed around 250 developers.

Keen to enter the medical sector, Materialise started developing products such
as surgical guides and dental implants in 1993. In the early years, orthopedics
companies and surgeons were reluctant to use Materialise’s surgical guides. But
the dental industry was more open and quickly adopted Materialise’s dental
implants and guides, making Materialise Dental a successful business line.

Lack of Focus! Restructuring Needed

By the 2000s, Materialise still mainly operated two divisions. New applications
were popping up left and right, and older ones were either slowly reaching
maturity or, conversely, growing fast worldwide. Materialise was selling
different products to different markets, from medical to automotive to luxury
sectors. The lack of focus started to become all too apparent. Vancraen
responded quickly to adapt Materialise’s structure and avoid becoming
overwhelmed by the multidirectional growth. The restructuring split Materialise
into six business units (BUs) that were all related to at least one of the three
core competences. Each BU was independent and had its own people and
market focus. The intent was for them to operate as independent startups within
the mother company, which also acted as the umbrella for the common support
functions (HR, production, finance, etc.). As Vancraen explained:
This structure permitted us to more easily spin off or divest any business unit that we felt
was starting to “phagocyte” others or that was moving farther than our three core
competences. The new structure worked marvelously for us.

Materialise Dental Fighting to Stay Alive: Smart Products for

Perfect Smiles
One of the most successful business lines was dental. The activities started as
early as the mid-1990s, with the sector keen to adopt a new player and new
technologies. The CEO’s vision was always to start with the highest added
value applications. So, in the dental sector, the company started with oral
implantology, by far the highest value market, way ahead of the orthodontics
and prosthetics markets.
The activities grew rapidly, as expected, but Materialise soon antagonized the
powerful and profitable oral implantology market leaders. Nobel Biocare, the
market leader, rapidly copied Materialise’s system, forcing Materialise to sue
for patent infringements. The litigation expenses nearly caused Materialise to
go under, while Nobel Biocare raked in the profits from selling copied implants
and capturing market share. Faced with an aggressive market leader, Materialise
was too small to compete effectively and survive on its own. It became obvious
that it would have to find a powerful partner in the industry to continue playing
the game with some chance of success. The fact that Nobel Biocare was acting
alone created an opportunity to forge alliances with a large group of Nobel’s
competitors in the implantology market. At the same time, Materialise and its
newfound allies could try to take the lead in products outside Nobel’s portfolio.
Vancraen said:
The high-end market was a challenge for us but there were enormous opportunities to go
down in value in products for orthodontics and prosthetics with our 3D printing
technology. But to be successful in those markets and capture market shares, we also
needed a strong partner with muscle power in these markets.

The biggest name in the world of dental consumables was Dentsply, which
approached Materialise, expressing an interest in its dental activities. Dentsply
owned a large share of the dental market and provided numerous services to
nearly every dental lab and dentist in the world. To prepare for a potential deal,
Materialise spun off its dental branch to form Materialise Dental. A deal was
reached in 2006 whereby Dentsply acquired 40% of Materialise Dental for €20
million. Since Dentsply products and operations in the oral implantology sector
were different from Materialise’s, the latter was able to maintain its position in
the oral implantology market, while simultaneously delivering technology to
Dentsply for other market segments that it could not access directly. This was a
clear win- win situation for both partners.
The activities started as a joint venture but after a few years Dentsply acquired
Astra, one of the leading companies in the dental implantology sector. This
acquisition changed the strategic positioning of Materialise Dental within
Dentsply, so the latter decided in 2011 to exercise its option to buy the entire
Materialise Dental activity in a transaction valued at over €30 million.

The 2013 Structure

By 2013 Materialise was operating through eight different BUs, each with its
own technology and market focus (refer to Exhibit 4).

Additive Manufacturing Solutions (AMS)

The original setup of the company meant AMS would become a 3D printing
service bureau. This was done through the additive manufacturing services BU,
one of the pillars of Materialise. AMS provided printed parts for prototypes or
for manufacturing. It focused only on the European market since the US 3D
printing market proved too competitive.

Software for Additive Manufacturing (SAM)

This BU sold software to various 3D printing service bureaus, most of them
competitors of Materialise’s AMS. These companies had critical software
needs, and Materialise was quick to see that it could help itself by servicing its
competitors’ activities. Pauwels explained:
The clients/competitors buy software from us because it’s a guarantee that the software
works well since it was developed and tested in-house to support the Materialise service
bureau activities, not software written by some guys sitting in an ivory tower developing
some fun stuff. At the same time, this model puts pressure on our service bureau to work
hard to stay ahead of these competitors. This model adds a lot of value to the 3D printing
market and we really believe that without such openness we cannot bring the 3D printing
sector to life and accelerate its progress.

Rapid Fit (RF)

This was the youngest BU. It combined design and additive manufacturing to
create applications for the metrology departments of automotive manufacturers,
meaning mostly customized modeler systems, jigs, fixtures and quality control
solutions by exploiting the benefits of additive manufacturing for measuring
automotive components.
The activity started as an innovative in-house fixturing system but quickly
became a business in its own right, servicing several international plastic part
manufacturers. This metrology solution was a game changer for clients’
metrology departments as it solved persistent problems in the industry.

Biomedical Engineering (BE)

This BU developed, sold and serviced software and services for biomedical
engineers at academic and research institutes and in the R&D departments of
large medical companies. It worked closely with clients to bring their
innovative implant designs to the next stages and was involved in similar
developments in stem designs. Different applications were developed for
sectors as diverse as orthopedics, cardiovascular, pneumology, forensics and
anthropology.

Orthopedics (O)
Focusing on the needs of orthopedic surgeons, this BU brought an innovative
value proposition to orthopedic surgery. It allowed surgeons to not only plan
better in advance but also ensure considerably better precision during surgery.
After capturing a patient’s specific data through medical imagery, it used in-
house software to plan the surgery and design custom instruments to assist
surgeons during the operation. The unit could also print surgical guides to help
the surgeon perform the operation (drilling and cutting bones) with great
precision.
As an example of the new opportunities created by additive manufacturing in
orthopedics, the case of patient X was quite revealing. The patient had been
treated for a double-radius fracture but unfortunately experienced problems
rotating the joint after the fracture had healed. An X- ray indicated that a
malunion4 of the radius was responsible, a problem that could be quite complex
to repair. The surgeons opted to use virtual surgical planning and patient-
specific surgical guides from Materialise to treat the patient, helping repair his
arm to full functionality.
The process started with the creation of a virtual 3D reconstruction using
Materialise software. The 3D image data revealed how serious the malunion
was. Armed with this information, the surgeons collaborated with their personal
engineer at Materialise to try out various surgical plans prior to surgery. They
were able to choose the best possible treatment for this specific case and turn it
into a virtual surgical plan, ready for the next step of the process.
Based on the surgical plan, the engineer at Materialise designed patient-specific
surgical guides that fitted the unique shape of the patient’s bone; these were
fitted with drill sleeves and slits to perform the cuts determined in the pre-
surgical plan. Once the surgeons had approved them, the guides were brought to
life using additive manufacturing. Then, with the pre-surgical plan and the
guides in hand, the surgeons were able to confidently step into the operating
room and execute the plan.
In this particular case, the patient challenges were clear: 2D X-rays did not
show the severity of the problem and traditional surgical planning did not offer
enough tools to plan such a complex procedure. Materialise’s solution allowed
surgeons not only to get better insights into the pathology but also to reduce
uncertainty and enhance the predictability of the surgical procedure.

Cranio-Maxillofacial (CMF)
The activities of this BU were somewhat similar to those of the Orthopedics
BU, but the clients were cranio-maxillofacial surgeons. The activities were
more complicated because they had to take into account a more complex part of
the body. In addition to planning the surgery (imaging, guides, etc.), the
patients’ maxillofacial implants had to be printed in 3D using space-age
materials such as porous titanium for reconstruction and plastic surgery. The
value proposition here was also a game changer.
4Malunion is the clinical term used to indicate that a fracture has healed but in a less than optimal
position, resulting in a bone being shorter than normal, twisted or rotated in a bad position, or bent.
.MGX: Playing in the Fashion Market
.MGX was the new fashion branch of Materialise. This BU produced and sold
3D printed items from designer collections by renowned artists like Patrick
Jouin, Luc Merx, Iris Van Herpen and others. In close collaboration with
Materialise, designers were inspired to take advantage of the limitless
manufacturing virtues of 3D printing to trigger new creativity journeys.
The products ranged from furniture items and lamps to fashion dresses and hats.
Obviously this division was always open to producing new creative designs and
collaborating with top designers to take the innovation ever further.
This division’s products were sold directly through a webshop and in the .MGX
gallery in Brussels. As Pauwels said:
We aim through .MGX to generate marketing exposure for Materialise. The goal is not
only to make attractive and complex designs but also to trigger industrial designers and
show them what the potential of 3D printing in design is. The breakthrough comes from
integrating functionality in the initial design, without having to assemble afterwards.
Many of our creative designs have already won significant design awards.

iMaterialise: Giving Shape to Your Creativity

The iMaterialise BU was both a platform and an online shop where individuals
could print their own designs. As a consumer-oriented 3D-printshop,
iMaterialise became a favored platform for young designers who could sell
their designs there directly; the buyers could then have them printed at
Materialise. Pauwels explained:
iMaterialise is for the creative people but at the same time we also try to make people
more creative because we understand that not everybody is able to work in a 3D CAD
environment, so we offer them tools like personalizing an existing design, for example
by adding a small text for your wife, which makes a personal gift at an affordable price.

Financing the 3D Dream

After its initial round of funding, Materialise raised money only twice, in 1998
and 2001. In 1998, Materialise needed to raise funds to build its facilities in
Belgium and open offices abroad. The activities were growing quickly and the
research center that had hosted them until then was splitting at the seams. It
raised €1.5 million against 15% to 20% of the equity from family members,
friends, employees and a local finance institution. In 2001 it raised another
round of financing to acquire a US-based competitor in the dental field to gain
access to the US market. The acquisition was made on September 11, 2001 –
the infamous 9/11. It raised $10 million from a financial investor and a Japanese
industrial company against approximately 20% of the company.

The Key Players

Two categories of players were driving the 3D printing industry in 2013 (refer
to Exhibit 2): system manufacturers and service providers.

The system manufacturers were the most influential and revenue-generating

category because they sat on top of the industry’s value chain. The number of
players was growing slowly due to the high technological and financial barriers
to entry. The biggest players were Stratasys, 3D Systems and EOS. Stratasys
was a publicly listed company that achieved its IPO after merging with another
big player in this category – Objet. Stratasys focused on business customers and
grew both organically and through acquisitions. 3D Systems was the biggest
global machine manufacturer and software developer by turnover and market
cap. It focused on the consumer market and followed a growth-by-acquisition
strategy. EOS was a different animal. A privately held German company, it was
a focused machine manufacturer, growing fast in a strictly organic manner.
The service providers sat closest to consumers and were thus best positioned to
create new applications and open new horizons. The number of players in this
category was also growing fast, with little consolidation in sight because the
local dimension was essential in serving customers. Two types of players could
be distinguished: the experts, who were able to advance the sector through new
applications; and the users, whose only contribution was to use the machines to
fulfill simple market needs. Materialise clearly belonged to the first type.
It was interesting to note that the traditional big-tech players such as Canon,
Samsung and others had shown a great deal of reluctance to enter the 3D
printing market. This could be rationalized in different ways. First, the 3D
printing market was still small in 2012 ($2 billion global market) and hence not
really on their radar screen. Second, it was young and far from maturity, so a
wait-and-see attitude may have been the norm. Interestingly, many of them
were using 3D printing in their processes.
But that attitude may have been about to change. In 2012 GE acquired Morris
Technologies. This was a low-risk investment for GE because Morris
Technologies was already a major supplier of many parts for GE Aviation and
was located only minutes from its headquarters. In addition, the collaboration
between HP and Stratasys, in which Stratasys was expected to manufacture HP-
branded 3D printers, proved unsuccessful: The manufacturing and distribution
agreement was discontinued in August 2012.
Printing a Bright Future
There was no let-up in Materialise’s growth from its inception. Revenues
reached the $90 million mark in 2013, with 1,000+ employees. Materialise
blanketed the world with its offices and agents. The company was broadly
diversified, catering to different markets in both B2B and B2C sectors. It was a
clear market leader in applications such as software for additive manufacturing
and biomedical engineering, and it led the pack in biomedical 3D printing
activities.
But the competitive landscape was evolving quickly. 3D printing remained a
high technology sector but many new service bureaus were opening up. Hype
about 3D printing was growing in the media, further increasing demand for 3D
printing applications and products. As a direct consequence, new entrepreneurs
were investing in the market. The barriers to entry (technological and financial)
were obviously lowering on the service provider side, but at the same time they
were becoming steeper in machine and material manufacturing.
Vertical integration was starting to appear in the industry. Big 3D printing
machine manufacturers were starting to acquire service providers, software
developers and material manufacturers. 3D Systems acquired 26 companies
between August 2009 and the end of 2012, targeting the entire range of additive
manufacturing industry offerings. On the service provider side, 3D Systems
purchased Formero Pty, Ltd (Australia) in September 2011 and Kemo
Modelmakerij (The Netherlands) in October 2011. Formero operated mostly in
Australia and China. The official announcements made it clear that the vertical
integration aimed to reinforce the technology. It was a bit early to judge the
effectiveness and long-term effects of this emerging trend and whether it would
ultimately reinforce the technology, but it would clearly affect the players’
behavior for years to come.
The entry of system manufacturers into the market put pressure on service
bureaus by driving prices down thanks to better materials, equipment and lower
maintenance costs. Service bureaus would be faced with two choices to survive:
either differentiate themselves through their services (which unfortunately
required R&D capabilities and further investments) or make themselves
attractive as an acquisition for a system manufacturer. Further consolidation
was clearly in sight.
For Materialise, the options were numerous. It could become the consolidator,
acquiring and merging with other players. But with its unique portfolio of
competencies and activities, it could as easily become a seller in the process.
Then again, it could continue to grow independently. There was also the issue
of whether it should seek further financing from the public in an IPO that would
most definitely raise a lot of attention, or it could remain private.
Being an established prized player in the industry opened up many
opportunities, but this definitely did not make the choices easier. What would
give Materialise the best shot at a great future in this most promising industry?

Exhibit 1
3D Printing Process
Source: Formlabs Blu-Ray 3D printer <http://formlabs.com/>

Exhibit 2
3D Printing Ecosystem

Source: Materialise

Exhibit 3 Materialise Core Competences

Source: Materialise

Exhibit 4
Materialise’s Eight Business Units in 2013
Source: Materialise