Tool providers eat solution providers the moment work standardises.
The squeeze runs upward. Foundation-model vendors and tool providers push into orchestration, UI, and trust layers - eating solution-provider territory as the underlying work standardises. Sitting still in the middle is the worst place to be.
Once an AI capability stabilises, the tool provider can credibly take more of the stack. They have the data, the engine, the user. The solution provider becomes a wrapper.
The squeeze runs from below upward. Sitting in the middle - too far up to be infrastructure, too far down to own the outcome - is the most exposed position.
Why encroachment runs upward
Tool providers learn from every customer. Once they've accumulated enough usage data, they understand the solution layer better than any individual solution provider. They can replicate the orchestration logic, the UI patterns, the workflow integrations that the solution provider used to differentiate on.
They have three structural advantages: learning across customers, scope expansion as their tool absorbs adjacent capabilities, and clockspeed (they ship faster than the solution providers built on top of them). When all three align, encroachment becomes inevitable.
The defence isn't denial. It's architecture. Solution providers who survive own the layers that are hardest to encroach - typically trust/compliance, deep domain expertise, and direct customer relationships. The ones who don't survive thought their workflow integration was their moat.
United Shoe Machinery, 1899
When the equipment vendor became the only buyer that mattered.
United Shoe Machinery (USMC) provided the leasing equipment that shoe factories needed to compete in the early 1900s. The lease terms required the use of the entire suite of machinery together. Shoemakers had no real choice: USMC's system was dramatically more productive than craft methods.
Once shoemakers adopted the equipment, USMC encroached upward - into design, into distribution, into pricing decisions. The shoemakers became wrappers around USMC's machinery and standards. Solution providers, except they weren't really providing the solution anymore.
The same dynamic is playing out now between foundation model vendors and the SaaS application layer that's built on top of them. The mechanics are different. The structural outcome is the same.
Pick an industry - see where the encroachment is hitting
Each industry's stack shows which layers tool providers are most aggressively encroaching INTO. The dominant layer is where the squeeze is most active right now.
Connects to
The Solution Advantage
Value goes to whoever absorbs the customer's risk, not whoever ships the smartest tool.
Control Points
Power lives at the chokeholds others have to route through.
Value Migration
When AI dissolves a bundle, value moves to whichever layer captures the new constraint. The map of who-wins-what gets redrawn.
Where to Play, How to Win
There's no “AI strategy.” There's strategy in an AI-shaped landscape.
The middle of the stack is the most exposed position. Own the bottom, own the top, or accept the squeeze.
AI Value Stack & Agentic Architecture
An advisory engagement that diagnoses where encroachment is most likely to hit your firm and architects defences - moving deeper into the stack you can credibly hold, exiting layers you can't, claiming new layers before others do.