The Dark Side of 3D Printing

The upsides to 3D printing in the medical and business communities are tremendous, but at what price?

Feb 5, 2014 at 1:02PM

The potential that 3D printing offers manufacturers, the medical and research communities, and ultimately investors in search of growth, seems limitless. That's the good news. But as with any new product or service on the cusp of changing the way business is conducted, there are also risks. And in the case of 3D printing, the data suggests those risks could end up costing several industries billions of dollars.

According to new research from Gartner, the negative ramifications of 3D printing to businesses, particularly those that rely on licensing deals and intellectual property (IP) to generate revenue, are going to become a seriously expensive problem in the next few years.

Case in point
When 3D Systems (NYSE:DDD) announced it had entered into an agreement to acquire 3D modeling provider Gentle Giant Studios in early January, it gave the 3D printing giant instant access to Gentle Giant's cutting-edge technology. But just as valuable as its software to 3D Systems was Gentle Giant's licensing deals with some of the biggest names in the toy and entertainment industries.

Overnight, 3D Systems became the proud owner of franchise rights to megabrands including Harry Potter, The Walking Dead, and Star Wars. As 3D Systems said at the time of the acquisition, the deal will "immediately leverage Gentle Giant Studios' technology and vast library of digital content into its consumer platform and extend its existing brand relationships." Sounds good, but what if the licenses 3D Systems gained by acquiring Gentle Giant became worthless?

The problem
According to Gartner, 3D printing will be used by as many as seven of the top 10 global retailers by 2018 to "generate custom stock orders, at the same time as entirely new business models are built on the technology." If it turns out Gartner's research is even close, 3D printing is going to become a significant part of the manufacturing process for some of the biggest companies on the planet.

For 3D Systems and other license holders, the growth of 3D printing is a double-edged sword. On the one hand, if you bought a Star Wars action figure for your son or daughter over the holiday season, part of the cost likely went to Gentle Giant, now 3D Systems, in the form of a licensing fee. The same concept applies when you purchase most apparel with a professional sports team affiliation, and any number of other licensed items.

The downside to companies like 3D Systems will come as 3D printers, which are already being sold to consumers, become widespread and their capabilities continue to expand. The potential for consumers -- or worse, unscrupulous companies around the world -- to manufacture their own custom products, bypassing licensing deals and intellectual property holders, will be tremendous.

Gartner believes that as the ability to circumvent licensing and IP fees expands along with the 3D printing market, the cost to companies will reach a staggering $100 billion or more in just four years. Can you imagine the impact on a licensing behemoth like Disney (NYSE:DIS) which generates about 80% of the entire retail industry's licensing revenues?

Final Foolish thoughts
The negative impact of widespread 3D printing goes well beyond the street corner vendor hocking "Rolex" watches to tourists for $10: Rolex will muddle through. But $100 billion, or more, in losses to license and intellectual property owners, and the legitimate manufacturers that produce licensed items, is enough to put some companies out of business. 3D printing is poised to change the business community forever. Unfortunately, it's also going to change the black market for knock-offs and counterfeits, too, and not for the better.

The next step for you
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Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, Gartner, and Walt Disney. The Motley Fool owns shares of 3D Systems and Walt Disney. 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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