The Infrastructure–Application Sandwich • Value accrues to the floor and the ceiling • Models get squeezed
- Power in AI does not sit in the model layer. It sits above (the application ceiling) and below (the infrastructure floor) (as per analysis by the Business Engineer on https://businessengineer.ai/p/this-week-in-business-ai-the-new).
- As model capabilities converge, they become interchangeable — a cost center, not a profit center.
- Whoever controls customer interaction or compute supply controls the economics.
WHERE VALUE ACCRUES IN THE AI STACK
Control the floor (infrastructure) or the ceiling (applications) — not the middle.
The AI stack has hardened into a three-layer power structure:
- The Ceiling: Applications
- The Middle: Models
- The Floor: Infrastructure
Only the top and bottom layers compound value.
The middle layer compresses.
This is the infrastructure–application sandwich (as per analysis by the Business Engineer on https://businessengineer.ai/p/this-week-in-business-ai-the-new).
THE INFRASTRUCTURE–APPLICATION SANDWICH
1. THE CEILING: APPLICATIONS
Controls customer relationship → Captures margin
Applications determine:
- who owns the user
- who owns the workflow
- who controls the transaction
- who captures the value
Commerce Layer
ACP (OpenAI) • A2P (Google)
Enterprise Layer
Microsoft Copilot • Google Vertex
Vertical Layer
Harvey (legal) • Hippocratic (healthcare)
Applications are the monetization engines of the agentic economy.
POWER CONCENTRATION AT THE CEILING
11.4% → ChatGPT conversion
vs 10.2% direct visits
AI-mediated commerce outperforms human browsing.
1M+ Shopify merchants onboarding via ACP
Agent-mediated transactions at scale.
Whoever owns the agent interface owns demand (as per analysis by the Business Engineer on https://businessengineer.ai/p/this-week-in-business-ai-the-new).
▼▼▼ SQUEEZE FROM ABOVE ▼▼▼
Application platforms compress model profits by:
- multisourcing models
- treating them as interchangeable
- prioritizing integration over innovation
- routing traffic based on cost-performance
The ceiling pushes down.
2. THE MIDDLE: MODELS
Converging capabilities → Squeezed margins → Cost centers
Model capabilities are rapidly converging:
- Opus: 80.9%
- GPT-5.1: ~75%
- Kimi K2: 71.3%
- Gemini 3: closing the gap
The differences are shrinking month by month.
This eliminates model-level differentiation and collapses margins.
Models become utilities — not monopolies.
(as per analysis by the Business Engineer on https://businessengineer.ai/p/this-week-in-business-ai-the-new)
MODEL COMMODITIZATION
$0.15 vs $10
The pricing gulf between Kimi-style efficiency models and premium US frontier models is now 10×.
This is the biggest evidence of commoditization in the industry.
As long as open-weight and INT4-native models keep improving, model vendors will operate under constant margin pressure.
▲▲▲ SQUEEZE FROM BELOW ▲▲▲
Infrastructure providers also push models downward:
- NVIDIA raises GPU costs
- hyperscalers standardize APIs
- custom silicon (TPU, Trainium) captures more value
- cloud providers bundle models at low cost
The floor rises; the ceiling presses down.
The model layer gets trapped between two monopolistic forces.
This is structural — not temporary.
3. THE FLOOR: INFRASTRUCTURE
Table stakes to compete → The floor keeps rising
The floor layer includes:
- silicon
- data centers
- energy
- distributed networks
- global GPU supply
This layer controls:
- unit economics
- deployment speed
- training feasibility
- platform power
Infrastructure is the scarce layer.
Models and applications are abundant.
(as per analysis by the Business Engineer on https://businessengineer.ai/p/this-week-in-business-ai-the-new)
INFRASTRUCTURE LAYER SCALE
$57B — NVIDIA Q3 revenue
Record-breaking GPU demand.
$500B — Stargate commitment
Infrastructure-first strategy for OpenAI + SoftBank + Oracle + MGX.
$5T — NVIDIA market cap
Company valuation driven entirely by infrastructure dominance.
Infrastructure is no longer “support.”
It is the moat.
THE STRUCTURE OF POWER
Applications pull value up • Infrastructure pulls value down • Models get crushed in the middle
The Ceiling (Apps)
- owns identity
- owns workflows
- owns purchase events
- owns enterprise lock-in
- owns agentic commerce
The Middle (Models)
- interchangeable
- price-pressured
- ML research no longer defensible
- open-weight alternatives spreading
- cost centers, not profit centers
The Floor (Infra)
- controls silicon
- sets capacity
- raises floor pricing
- dictates who can train frontier models
This is the new AI hierarchy.
THE ZERO-SUM SHIFT
Value migrates up and down — never stays in the middle.
Three truths now define the AI economy:
- Models will never recapture margin.
They have become the commodity layer. - Applications will monopolize customer-facing value.
Whoever owns the agentic interface owns the money. - Infrastructure will monopolize compute-facing value.
Whoever owns the chips and data centers owns the bottleneck (as per analysis by the Business Engineer on https://businessengineer.ai/p/this-week-in-business-ai-the-new).
THE STRATEGIC INSIGHT
The middle layer dies first.
For all the hype about “model superiority,” the truth is simple:
This is why:
- OpenAI moved into infrastructure
- Google doubled down on TPU
- AWS vertically integrated silicon
- China optimized for INT4 efficiency
- Enterprises shifted to agent-level integrations
Everyone is escaping the middle.
THE BOTTOM LINE
Power in AI is governed by the floor and the ceiling — not the middle.
- The floor determines who can train
- The ceiling determines who gets paid
- The middle becomes a low-margin utility
This is the power hierarchy of the AI era (as per analysis by the Business Engineer on https://businessengineer.ai/p/this-week-in-business-ai-the-new).
Whoever controls the lowest level of compute or the highest level of customer interaction will dominate the next decade of AI economics.
