The cloud killed the partner. What now?

When I look back, the historical model for technology distribution partners seems like it was built on a simple premise: As software giants, we needed local partners to overcome the complexities of international markets. By commoditizing distribution and providing direct access to customers, I’ve seen the cloud not only change technology but also dismantle the economic foundation the entire partner ecosystem was built upon.

The most apparent manifestation of this breakdown, from my experience, is the collapse of partner profitability. I watched the shift to subscriptions shatter the value of transactions and reduce our margins to an unsustainable 5–20%. This directly transferred costs and risks to us as partners that we didn’t have before, such as customer acquisition, exposure to bad debt and currency fluctuations. This structural imbalance makes our current partner model unviable and hinders our sustainability.

To understand how we got here and what I believe the solution is, I will analyze the evolution of our channel through two historical models and propose a new framework I call the “Tech Partner 3.0 Model,” designed for the age of specialization we now find ourselves in.

Model 1.0: Technology partners as territory owners

The technology distribution model I remember from the late 20th century was defined not by products, but by the complexity in each territory. For the global giants we worked with, entering markets with high regulatory and logistical complexity presented what seemed like insurmountable barriers.

Their strategic solution was to delegate this complexity to local partners like us, and we became the only way for them to achieve territorial expansion. We weren’t simple resellers; we functioned as de facto integrators at the end of the value chain. While the global tech company provided the product, we contributed a series of fully integrated services, including marketing localization, channel management, technical support and, crucially, navigating the local political and business environment on their behalf.

In this context, the exceptional returns, with margins reaching 50% on sales and 25% on renewals, should not be seen as simple commissions, but as a premium for absorbing the complexity of doing business locally. Partner profitability was directly proportional to the inherent difficulty of the market. Their true asset was not the software they sold, but their ability to create a commercial and regulatory infrastructure from scratch, internalizing the risks that the global manufacturer was unwilling to assume.

Model 2.0: The commoditization of distribution

The arrival of cloud computing represented a fundamental shift in our value chain. Its main disruption was not a new product, but the commoditization of distribution. By minimizing the complexities of implementation and access, the cloud allowed software manufacturers, for the first time, to reach global customers directly, redefining our role as local partners who were once indispensable for territorial expansion.

This structural change, an evolution that has deeply impacted IT channel partners, had two inevitable economic consequences. First, the shift from perpetual licenses to subscriptions fragmented the revenue stream into smaller transactions, eroding the basis on which our margins were calculated. Second, and more importantly, a false expectation arose that the intrinsic value of partners would decrease. The thinking was, if the cloud handled delivery and maintenance, the justification for margins disappeared. The result was a major margin compression across our ecosystem, which I saw fall to a range of 5–20%.

In reality, the cloud disintermediated the digital software transaction, but I argue it didn’t eliminate the need for commercial relationships and local specialization. Although a customer can technically buy software with a click, the process of selling, implementing, supporting a business solution and adding value with additional services aimed at continuing to grow the customer’s consumption requires much more than a simple transaction. This is where the local partner remains indispensable, for both the independent software vendors (ISVs) and the hyperscalers.

This created a profound paradox: While the cloud generated immense macroeconomic value (such as $3.5 trillion USD for the cloud computing market projected by 2035), it simultaneously destroyed the microeconomic model of the traditional partner. The same efficiency that benefited the global economy made the partner business unsustainable, caught between increasing acquisition costs and decreasing margins. The model that had defined an era for us has become obsolete, a direct result of the disruption hyperscalers created in SaaS channels, making our reinvention inevitable.

Model 3.0: The functional specialization of partners

The disruption of model 2.0 we experienced not only compressed margins, but also dismantled the premise of an integrated geographical partner. The inevitable consequence, as I see it, is model 3.0, which is defined by the modularization of the partner channel. Value no longer resides in a single partner who does everything suboptimally, but in the creation of an ecosystem of functionally specialized partners.

The traditional role of the partner grouped three fundamentally distinct functions into a single entity:

1. Demand generation (a marketing and sales competency)
2. Adoption services (a technical and consulting competency)
3. Transactional infrastructure (a legal and financial competency)

Demanding that a single company be excellent at all three is inefficient. It’s the equivalent of looking for a “duck” because it can fly, walk and swim, without excelling at any single discipline. The result is a mediocre execution.

The superior strategy for hyperscalers and ISVs, therefore, is to disaggregate these functions and optimize each one separately. This involves identifying and enabling the partners most suited for each task; so instead of an all-in-one duck, there’s an “eagle” to fly and handle demand generation, an “ostrich” to walk-run and take charge of professional services implementation, and a “penguin” to swim and build the legal and financial infrastructure to execute contracts and complete international transactions. The goal is no longer to find one partner per country, but to build a network of the best specialists by function.

I believe this refocus on specialization is the answer to the challenges of the current model. It enables the creation of a more profitable and sustainable ecosystem where each player focuses on their area of greatest value. The result is an optimized execution that accelerates the growth of manufacturers (hyperscalers and ISVs).

The imperative of collaborative specialization

This evolution of the technology channel, from the geographic integration in model 1.0 to the functional modularization I propose in model 3.0, represents a fundamental redefinition of how value is captured. The efficiency of the cloud has invalidated the premise that a single partner could dominate all facets of commercialization. Value no longer resides in being a generalist intermediary who benefits from market complexity.

Instead, success in our current ecosystem will be defined by excellence in a specific function. The competition is no longer between generalists, but between one demand generation “eagle” and another, or one transactional enablement “penguin” and another.

In this new model, players who try to do everything will be outperformed on every front by a specialist who can offer better performance at a lower cost in their area of expertise.

Therefore, the strategic imperative for every player, whether a hyperscaler, ISV or partner, is twofold. First, honestly identify your true core competency. Second, build and actively participate in an ecosystem that allows you to outsource the other functions to the best available specialists. Profitability in this new era will not depend on doing everything, but on doing one thing exceptionally well and collaborating efficiently. 

Hyperscalers and ISVs that proactively redefine their partner models based on these principles will be the ones to forge a robust and sustainable partner ecosystem, ultimately unlocking new avenues for growth and increasing their sales.

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