Chapter 12 The Factory in the Cloud

Once manufacturing went online, nothing would be the same again.

Mitch Frθθ WHS destined to be a worker, and probably not much more. He grew up in Tyrone, Georgia, then a town of 160.

Itwas 1982, he was twenty years old and married to his high-school girlfriend, and this looked like a preview of the rest of his life.

Then, one day, his boss asked whether anyone on the shop floor knew anything about CAD/CAM design. The Ford Motor Com­pany had given the shop a big contract and it required digital files. Free, who knew nothing about digital stuff, put up his hand anyway. Why? “I was getting really depressed about my career choices,” he says. Also, nobody else wanted to do it.

He crammed with some technical manuals and went to Ford’s op­erations in Dearborn to learn what the car company wanted. Then he started digitizing the machine shop’s designs to comply. He got better at it. First he manually edited the machine-code files, then he learned how to program software to do it. As sometimes happens, learning to program flipped a switch in his head. He loved it. He had finally found his calling. In 1988, Northwest Airlines, which had a maintenance facility in Atlanta, recruited him to create digital copies of replacement airplane parts that the manufacturer couldn’t supply, so the airline could fabricate them itself if needed.

Over time, he became the “innovation guy” at Northwest and grew more expert at digital tools, including a CNC machine he built that could automatically examine turbine blades, looking for flaws. He was taking old DC-IOs out of mothball storage and fixing them up enough for a crew to take them to Israel, where they could be overhauled and resold to a leasing company for a profit of more than $10 million each. By the late 1990s he had become the airline’s di­rector of technical operations at a time when it was becoming clear that the difference between successful and unsuccessful airlines was all supply-chain management—using global suppliers to get the right part to the right place at the right time.

That, in turn, made him realize that there was something bigger afoot than simply running an airline efficiently—the entire process of manufacturing was being reinvented by digital technologies. He took an offer to run regional sales for a CNC machine company, and in the course of doing so, he started talking to more manufacturers. He discovered that what they needed more than anything else, even more than a new CNC machine, was the ability to talk to each other. So he started hosting lunches. Then, one day in 1999, driving back from a lunch, he heard a LendingTree.com ad on the radio: “Request your mortgage. Let lenders compete for it.” He realized he should be doing the same for manufacturing.

Free bought the domain “MFG.com” for $2,000 and in 2000 started an online marketplace for manufacturing. The idea was simple: companies that wanted something made would upload their CAD files to the site, wrapped with a description of how many they wanted and any other instructions, and machine shops and other manufacturers would bid on the job, just as lenders compete for mort­gages on LendingTree. Companies would build up ratings over time, and highly rated suppliers could avoid the lowest-bidder trap.

This was, to be fair, not a terribly original idea. Around that time, all sorts of other “business-to-business” marketplaces, with names such as Ariba, VerticalNet and CommerceOne (and lots of “e” prefixes from eMetals to eTextiles), were starting up in industries from cars to plastics.

In February 2000, when MFG.com was starting, there were more than 2,500 such online B2B markets.⁴⁸ Then the market crashed, and by 2004 fewer than two hundred were left. Billions of dollars of stock market value evaporated. Part of the collapse was the famil­iar irrational exuberance of the time. But like many other dot-com ideas, they weren’t crazy—just too early. Companies weren’t set up to buy electronically; many had not even moved past the fax age by then. None of their procurement systems or accounting systems worked with the new marketplaces, forcing employees to hand-type in everything. What’s worse, the suppliers didn’t want to partici­pate. Why should they compete in a marketplace where the goal was to drive prices as low as possible, when they could use buyer/ supplier relationships that they had built up over decades with big customers?

MFG.com was one of the survivors. Because it was later to start, it hadn’t been hyped to the stars. There was no failed IPO, there were no massive venture rounds. Instead, it was Free and a few employ­ees in Atlanta building a bare-bones website from scratch with Free’s own money. By starting small, without the distortions of too much money and pressure, it had time to find its path.

That path was simplicity. No auctions, reverse or otherwise. No group buying or order pooling. No “frictionless capitalism.” Just a place to upload files and get quotes.

Rocket science

It worked.

While Bezos was secretly browsing the site, Free was negotiat­ing to sell it to Dasault Systems, a French manufacturing technology company. Just two weeks before the deal was to close, Bezos pounced and put in a counteroffer to invest in the site and keep it in Free’s hands. He tossed in another $2 million for the employees and that sealed it: MFG.com would now remain independent, with Bezos as its main investor.

Today it is the world’s largest custom manufacturing marketplace. It has more than 200,000 members in fifty countries and has bro­kered more than $115 billion in deals so far, with an average of $3-4 billion a month today.

The deals that scroll by on any given day are typically pretty pro­saic stuff—injection-molded plastic enclosures, machined metal rods, fasteners, specialty cables—but they give Free an unmatched win­dow on the world of manufacturing today. He (and anyone else who chooses to dig through the site) can see where things are being made and by whom. He can watch the flows of fabrication, the tides of tooling. The Americans sourcing in China and those who are return­ing to the States. The Germans sourcing in Poland and the French sourcing in, well, anywhere but Germany. It’s a fascinating glimpse into culture, economics, and globalization. Forget the rhetoric—this is the raw deal flow of what companies are actually doing every day.

What’s even more interesting than what’s being ordered is who’s doing it.

Now companies of any size can just upload a CAD file and let the bids come to them. They get the best pricing and best products in the world without leaving their desks. Sound familiar? That’s what the first wave of e-commerce offered regular shoppers. Now were seeing the eBay and Amazon effect play out in manufacturing, too.

Why does it work so well now, and not a decade ago? The world just caught up. Along with a Web generation coming into manage­ment at traditional companies, the digital fabrication methods that captured Free’s imagination have gone mainstream. The main reason MFG.com can work today when so many B2B marketplaces failed a decade ago is that companies throughout the manufacturing supply chain now all use the same file formats, from CAD to electronics. The transaction costs of closing a deal have fallen because there’s less lost in translation. Everybody speaks the same language of digi­tal manufacturing. It’s as simple as that. It just took common plat­forms to make the dream of hyperefficient B2B online marketplaces a reality.

This is the way all successful technological revolutions work.

The Gartner Group describes this boom-bust-boom trajectory as the “Hype Cycle” of tech-driven change. After the “Peak of Inflated Expectations,” there is the “Trough of Disillusionment.^,,Then comes the “Slope of Enlightenment,” finally ending up in the “Plateau of Productivity.” Weve been through the first three already. Now we’re enjoying the last.

So while the rest of us are having our heads turned by the latest buzzy social media thing, sites like MFG.com are quietly going about their work of turbocharging the world’s real economic engine, mak­ing stuff. You’re welcome.

Open Sesame

In 1999, while I was working in Hong Kong as The Economist's Asia Business editor, one of the first people I met was a hyperkinetic wisp of a man named Jack Ma, who wanted my advice on a new Web company he was setting up. Four years earlier he had taken a trip to the United States, where he’d seen his first Web browser in action. It blew his mind, as it did for many people back in the day. When he returned to his hometown of Hangzhou, he found a dial-up number for Internet access, gathered friends around, and waited three hours for the first page to load. It was thrilling. The Web existed in China! He went on to start China Pages, which is considered China’s first Internet company, and ran an early e-commerce project for China’s Ministry of Foreign Trade and Economic Cooperation.

When Ma came to see me, I was struck by three things. First, he was the tiniest adult male I had ever met. Not just short,but small—boned and skinny. I doubt he weighed more than eighty pounds and most of that seemed to be his head, which was probably just normal-sized but appeared huge on his frame. Second, he spoke perfect English and what weight he had seemed to be entirely brain. He was brilliant and incredibly articulate and enthusiastic about the potential of the Internet, which was not a common thing to hear from mainland Chinese nationals in those days. Finally, in part because of his role with the Trade Ministry, what he was most excited about was not the consumer side, but the Web as a way for smaller Chinese manufacturing companies to break through the language and cultural barriers to doing business directly with foreigners.

What he wanted to ask me was what I thought of the name “Ali­baba.” “You know,” he said, “like ‘open sesame.’ ” I liked it, encour­aged him (although I seem to recall that I had some unhelpful advice about changing the tag line), and off he went.

Today, Ma is a billionaire. The Alibaba Group, which owns some of China’s biggest Internet companies, has more than 23,000 employ­ees. It’s S1.7-billion initial public offering on the Hong Kong Stock Exchange in 2007 was the biggest tech debut since Google. As I write this, he is considering buying Yahoo! Last time we met, in NewYork, it appeared that he had put on some weight. He may be close to a hundred pounds now.

Alibaba.com is still the core of Ma’s operation. It has achieved everything he set out to do, and more. It has more than 70 million users and 10 million “storefronts,” both Chinese firms and producers elsewhere. Every day millions of people do what he envisioned more than a decade ago: place manufacturing orders with factories from their desks.

While MFG.com was doing this with machine shops, Alibaba was extending the model to everything and everyone. I’ve ordered custom electric motors for a robotic blimp from a specialty motor-maker in Dongguan; I specified the shaft length, number of windings, and wire type, and ten days later prototypes were on my doorstep for my review. I was, I have to admit, stunned. I had got a Chinese factory to work for me! What else could I do with this new-found power?

From a Maker perspective, the rise of Alibaba and sites like it are an enabling technology like no other. They have essentially opened the global supply chains to buyers of all sizes, including individuals, letting them scale prototypes into full production runs.

This is not just due to Alibaba; it’s also coming from transfor­mation in the Chinese economy and management culture. Over the past few years, Chinese manufacturers have evolved to handle small orders more efficiently. This means that one-person enterprises can get things made in a factory the way only big companies could before.

Two trends are driving this. First, there’s the maturation and in­creasing Web-centrism ofbusiness practices in China. Now that the Web generation is entering management, Chinese factories increas­ingly take orders online, communicate with customers by e-mail, and accept payment by credit card or PayPal, a consumer-friendly alterna­tive to traditional bank transfers, letters of credit, and purchase or­ders. Second, the current economic crisis has driven companies to seek higher-margin custom orders to mitigate the deflationary spiral of commodity goods.

For a lens into the new world of open-access factories in China, just search Alibaba (in English), find some companies producing more or less what you’re looking to make, and then use instant mes­saging to ask them if they can manufacture what you want. Alibaba’s IM can translate between Chinese and English in real time, so each person can communicate using their native language. Typically, re­sponses come in minutes: we can’t make that; we can make that and here’s how to order it; we already make something quite like that, and here’s what it costs.

Ma calls this “C to B”—consumer to business. It’s a new avenue of trade, and one ideally suited for the micro-entrepreneur of the DIY movement. “If we can encourage companies to do more small, cross-border transactions, the profits can be higher, because they are unique, non-commodity goods,” Ma says. The numbers bear this out. Over the past three years, Ma says, more than 1.1 million jobs have been created in China by companies doing e-commerce across Ali­baba’s platforms.

This trend is playing out in many countries, but it’s happening fastest in China. One reason is the same cultural dynamism that led to the rise of shamhai industries. The term shamhai, which derives from the Chinese word for “bandit,” usually refers to the thriving business of making knockoffs of electronic products, or as Shanzai. com (the spelling of the Chinese word in English sometimes doesn’t have the second “h”) more generously puts it, “a vendor, who operates a business without observing the traditional rules or practices often resulting in innovative and unusual products or business models.” But those same vendors are increasingly driving the manufacturing side of the maker revolution by being fast and flexible enough to work with micro-entrepreneurs.

Today, shanzhai manufucturers are shipping more than 250 mil­lion mobile phones a year, many of them knock-off copies of iPhones and Android models, many of which are produced in relative small quantities of ten thousand or fewer. Variation abounds, from styling to product features, in an effort to stand out. (For instance, many shanzhai phones have two or even three SIM card slots, to accom­modate consumers who use different cards for home, work, and even mistresses.)

What’s interesting about shanzhai is how similar the organization structures of piracy end up looking like those of open source. Once ideas and technology gets into the wild, whether dragged there by pirates or placed there by developers who believe in open source, they tend to stimulate the same sort of collaborative innovation. Ideas, once shared, tend to be shared further. People who are sharing ideas tend to work together for mutual benefit. Without secrets, prices fall and accountability rises.

In a conversation with the Institute of the Future, David Li, founder of Xinchejian, China’s first formal hacker space, explained why the shanzhai model is a model for open innovation, micromanu­facturing and the future of personal manufacturing:

Shanzhai manufacturers started without much regard to the IP [intellectual property] of the original holders and share the in­formation among themselves openly. None of the vendors par­ticipating in the ecosystem are big and there is no centralized giant among them to coordinate the ecosystem. Each one of them pulls and pushes each other to produce an efficient micro­manufacturing ecosystem that can respond to the market fast with very little overhead.⁴⁹

As he describes it, these companies fit neatly into the Institute for the Future’s model for “lightweight innovation.”⁵⁰

1. Network your organizations: “The bike vendors in Chong­qing hang out in tea houses and shanzhai vendors in Shenzhen have a vast network centered in the large electronics malls.”

2. Reward Solution Seekers: “Penny-a-unit profits force the shanzhai collaborations to be totally solutions-driven. They don’t make money if they don’t deliver. “Not invented here” is never a problem.”

3. Err on the side of openness: “The wild west of shanzhai is all about openness. Trade secrets of big companies are flowing freely. Everything is “open sourced” by default. If we take the [intellectual property rights] issue aside, it’s really the ultimate openness we in the open source are looking for.

4. Engage actively: “The shanzhai vendors used to produce knock-offs after original vendors had the products on the mar­ket. But in the past year I have seen a lot of them act on the latest TechCrunch rumor, especially those related to Apple. It was kind of funny that there were several large-size iPhones (seven-inch and ten-inch) being produced by the shanzhai sim­ply on the rumor that the iPad would look like a large iPhone.”

The rise of shanzhai business practices “suggests a new approach to economic recovery as well, one based on small companies well net­worked with each other,” observes Tom Igoe, a core developer of the open-source Arduino computing platform. “What happens when that approach hits the manufacturing world? We’re about to find out.”

The DIY factory

Finally, there is a third group of “factories in the cloud”: the Web-based service bureaus that do with digital fabrication tools such as laser cut­ters and 3-D printers what photo services such as Shutterfly do with your pictures: you simply upload files and get back fabricated objects. They give you access to high-quality production without your having to own the tools yourself.

Perhaps the best known of these are Ponoko and Shapeways. Po- noko (on whose advisory board I sit as an unpaid volunteer) started in New Zealand as a laser-cutting service, but is now global and offers laser-cutting, 3-D printing, and CNC cutting. The model is simple: design something on your desktop, and upload the file to the website. Software there will examine the file and make sure it’s produceable, then guide you through choices on how you want it made. If it’s a 2-D image, it can be laser-cut in a range of materials, from plastics of various sorts to woods and even thin aluminum. If it’s a 3-D image, it can be 3-D printed or CNC cut in an even wider range of materials. You can design and make something as small as a ring and as large as a table, and if you’ve made a mistake in your file (which I invariably do), either the software or a human will help you fix it.

As with a photo service, you can also choose to share the files pub­licly and let others order copies for themselves. You can even create a simple “storefront” in which you get a cut of the revenues anytime someone makes something that you uploaded.

Ponoko doesn’t own most of its production machinery. Instead, it’s just a software layer between consumers and fabrication shops with spare capacity. The Ponoko website does the tricky work of coach­ing potentially inexperienced Makers into creating the design files and uploading them in a form that machines can understand. It rec­ommends materials, calculates pricing, and handles the transaction. Then it sends the files to fabrication houses that don’t have to deal directly with consumers.

Shapeways does the same for Ç-D printing, with a dazzling range of materials that extend from the usual plastics and resins to titanium, glass, and even stainless steel. Costs are calculated based on the ma­terials chosen and volume needed. Something the size of a toy soldier might cost fifteen dollars in plastic, while bigger metal items could run fifty dollars or more. Objects can be printed in monochrome or full color.

Similar services exist for electronics (printed circuit boards), fab­rics, and even ceramics. Meanwhile, the grandfather of them all is the Lego company, whose Lego Digital Designer CAD program for kids lets them do exactly the same thing with Lego bricks, creating a de­sign onscreen, then uploading it to the service to be turned into a cus­tom kit that is shipped back to them, Iookingjust like an official Lego kit. Then, if others buy it, the designer will get a cut of the revenues.

What all these services offer, from the machine shops of MFG. com, the low-cost factories of Alibaba, or the one-off digital fabrica­tion of Ponoko and Shapeways, is the ability to make things from your desktop without having any tools of your own or stepping into a factory. In a sense, global manufacturing has become scale-agnostic. Once factories only worked for the biggest companies with the big­gest orders. Now many of them will work at any volume. Smaller batches mean higher prices, of course, but if you’re just making a few of something the cost difference may matter little compared to the ability to do it all. The world’s supply chains have finally become “im­pedance matched” to the individual. Anyone can now make anything.

Soon this smart fabrication software will be built right into the CAD programs themselves, such as Autodesk’s 123D. Just as you can choose “Print” from your word processor menu, you will soon be able to pick “Make” from your CAD program’s menus. What’s more, you will be able to choose whether to make “locally,” on your own desktop

The Factory in the Cloud ∣ 217 fabricator if you have one (a Ç-D printer, CNC machine, or laser cut­ter), or “globally” in the cloud using one of these services. The soft­ware will help you choose whether to use 2-D or Ç-D methods, and which materials to pick based on their properties and cost. The final barrier against entry to mass fabrication will have fallen. We will all just be a menu click away from getting factories to work for us. What do you want to make today?