By Brooks Hamilton
Much has been made about how distributors should leverage artificial intelligence to improve their efficiency and productivity. But I’ve heard far less talk about another aspect of the AI revolution: the economic opportunity presented by the infrastructure being built to support AI.
Consider what it takes to make AI work: large data centers, computers to run the AI models, and enormous amounts of electricity.
- Who will provide the construction materials to build those data centers?
- Who will provide the water, HVAC, cabling, security and components inside those data centers?
- Who will provide the electrical power generation and transmission needed to power them?
Microsoft and AWS alone have earmarked a combined $250 billion for new data center investment earlier this year. And, according to one estimate, the U.S. will need to build out its power generation capabilities by 50% to accommodate AI data requirements by 2030.
There hasn’t been a national infrastructure buildout of this magnitude since the rise of the Hoover Dam and other major hydroelectric projects during the Great Depression. The level of AI spending by the major tech companies, as a percentage of national GDP, is on par with the height of the U.S. government’s spending on the Space Program during the 60s.
That means some very motivated, big-dollar buyers won’t have the patience to just wait around for the right distributor to come along. They’re ready to make moves right now.
The Time to Sell Shovels is Now
Here are some opportunities for distributors.
Perhaps your company is already engaged in these, considering them, or has decided that they were not relevant before. It is time to take another look at each of those investment priorities and the assumptions behind them.
The opportunities fall into five categories:
Go-To Supplier for Data Center Infrastructure Projects
Opportunity: Tech giants are in a race to build data centers and power infrastructure. Demand far outstrips supply, creating a seller’s market.
Product Actions:
- Aggressively secure supply chains and inventory of critical components.
- Consider strategic acquisitions of companies that specialize in the area or have especially valuable inventory positions or those situated to effectively serve data center construction.
- Exclusive supplier agreements ensure sufficient supply and avoid stock-outs.
- Research expanding your product footprint into specialized data center components such as cooling systems, power distribution units, high-performance networking components, power handling and security measures.
Organizational Actions:
- Create a dedicated sales team with deep expertise in data center requirements.
- Form specialized support teams with knowledge about data center products and maintenance requirements.
- 24/7 rapid response teams for critical replacements.
- Increase organizational knowledge on data center construction plans and site selection by the large technology companies.
Benefit: Increased pricing power and the ability to charge premiums for rapid delivery and guaranteed supply.
Supplier for Contiguous Data Center Needs
Opportunity: This opportunity is far larger than the computing and networking components within data centers. A broad set of products are critical to the construction and operation of data centers and renewable energy projects.
Product Actions: Consider multiple product categories, some of which may be more relevant than others to your company’s product portfolio:
- Telecommunications infrastructure: High-capacity fiber optic and satellite systems.
- Water infrastructure: Advanced cooling systems often require significant water resources, treatment and recycling systems, piping and pumping systems for water distribution.
- Environmental control systems: HVAC systems for precise temperature and humidity control, air filtration systems, and data center-specific fire suppression systems.
- Emergency power systems: Backup generators and fuel storage facilities, uninterruptible Power Supply (UPS) systems, advanced battery storage solutions.
- Physical security infrastructure: Perimeter fencing and access control systems, video surveillance and monitoring equipment, and biometric security systems.
- Waste management infrastructure: E-waste and hazardous material management systems.
- Grid interconnection infrastructure: Substations and transformers for power grid connections, smart grid technologies, and optimizing energy management systems.
- Transportation infrastructure: Road improvements, specialized logistics for oversized components (e.g., wind turbine blades), and rail or port upgrades in strategic locations.
Benefit: Expanding into contiguous data center needs could position your company as a comprehensive solutions provider, driving revenue growth through diversification, deepening customer relationships, and creating defensible differentiation in a high-margin sector.
Supplier for Renewable Energy Infrastructure Projects
Opportunity: Tech companies are committed to powering data centers with renewable energy.
Actions:
- Supply components for solar farms, wind turbines, energy storage systems and smart grid technologies.
- Partner with renewable energy project developers.
- Develop expertise in grid-scale energy storage solutions.
Benefit: Diversified revenue streams and positioning as a forward-thinking, sustainable business partner.
Value-Add Services
Opportunity: Data center construction and operation requires specific needs. Speed of construction will be at a premium so the fewer moving parts and the more competent, consistent partners, the better.
Service Offerings: Train specialized teams and develop service packages relevant to the special market of data center builds for technology companies.
- Custom kitting and pre-assembly for data center components.
- Regulatory compliance consulting for data center projects.
- Sustainability consulting for green data center design.
- Maintenance history and estimated critical component failure.
Benefit: Higher margins, differentiation from competitors, and deeper customer relationships.
Strategic Partnerships
Partnership Opportunities: Distributors can partner with multiple companies in formal relationships or enhance the informal relationship via increased information sharing and coordination.
Action: Establish joint ventures or preferred supplier agreements.
- General contractors and sub-contractors specializing in data center construction to identify future projects via additional visibility into their pipeline.
- Form information sharing and training relationships with manufacturers of products, services and equipment specialized for data centers and power generation and transmission.
- Look to our Northern neighbor: According to Eric Schmidt, former CEO and Chairman of Google and advisor to the US Department of Defense, Canada a good fit for constructing massive data centers in Canada due to abundant hydroelectric power generation potential, well trained populace, intertwined infrastructure and cold weather that can be used to ambiently cool data centers.
Benefit: Access to project pipelines, co-developed products and enhanced market intelligence.
In all these spaces, distributors have an opportunity to seize pricing power. Position your company to be a go-to vendor and raise prices in areas where these customers – who, it should be stressed, are willing and able to invest a lot of money – are less sensitive.
The combined cash stockpile of Google, Apple, Amazon, and Microsoft is $470 billion (a stone’s throw from half a trillion dollars). Premium pricing is on the table if you play your cards right.
Coming Waves
This will not be a one-and-done wave of investment activity. The industry will see at least two waves.
The first wave will be the major tech companies investing ahead of the curve due to the race they are in with each other. Their primary driver is to train ever larger models (e.g. Microsoft and OpenAI have announced a $100 billion initiative to build a single super-computer for model training). They also need to service their immediate product needs such as Microsoft’s various Copilot products, ChatGPT, etc.
The second wave will likely be from non-technology companies using AI products and building their own models for internal use. While the technology companies will provide the infrastructure via their cloud providers (Amazon AWS, Microsoft Azure, Google GCP, etc.), a far broader set of companies and industries will drive increased demand. Major players in all industries, from energy to entertainment to breakfast cereal, are going to try to build, train and house their own specialty models.
This can be the start to a long wave to ride.
This is the perfect time for distributors to make a name for themselves in the new frontier of AI and AI-supporting infrastructure. If you sell concrete, steel, cable, wiring, power control, or other commercial building products, put your business in a position to benefit – it’s not too late, but you need to act quickly.
If you start making big moves now, you’ll set your company up for significant growth moving forward.
To discuss this and other trends brought about by the incorporation of artificial intelligence in the economy, reach out to AI Strategy Advisors.
Brooks Hamilton is the founder of AI Strategy Advisors, a consultancy specializing in crafting AI strategies for Fortune Global 1000 companies, family-owned businesses and high-growth startups. A seasoned veteran in the tech industry, Brooks spent 17 years at Zilliant, where he held pivotal roles in Professional Services and Product Management, including Vice President of the Professional Services team. His tenure was marked by ground-breaking work in AI-driven price optimization and sales effectiveness in B2B companies. Brooks also spearheaded Product Management at several Austin-based startups. Over the course of his career, he has overseen the implementation of 100+ AI and Machine Learning applications in B2B industries.
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