The Tech Sales Newsletter #65: The partner dilemma in tech sales revisited

This week, we will revisit and update an article that I initially wrote for edition 34 of this newsletter.

One of the most practical yet poorly understood parts of tech sales is partnerships. While every company has a “partner strategy,” for the most part, you will find a lot of repetitive playbooks, poorly implemented. As SaaS has become the most important model for deploying software, middlemen have slowly been pushed out unless they offer additional value to the end customers. The recent recession and increased focus on margins have only added fuel to the fire.

Now, what is this so-called “additional value” in 2025, and how can you leverage it in your sales cycles?

The key takeaway

For tech sales: When looking to join a new software company, I would strongly advise you to have a clear conversation during the interview process on how they approach the channel and what the expectation is from the reps in this context. This is one of the “hidden” elements of the job that has a disproportionate effect on your odds of success. Long term, you need to understand and become comfortable with cloud marketplaces as a primary vehicle for cloud infrastructure software transactions.

For investors: Understanding the channel strategy of a tech company is extremely difficult. Vendors rarely disclose the precise partnerships they have in place or the specific volume of business they do via those partners. Even worse, it’s almost impossible to understand how their involvement impacts margins and the cost of software acquisition. As such, focusing on the future makes more sense, i.e., how well the vendor is integrating on AWS/GCP/Azure Marketplace. I would advise investors to research CrowdStrike’s success story on AWS Marketplace as a starting point for what good looks like.

The conflict beneath the surface

Fundamentally, partners exist to solve two problems:

• Distribution for the vendor

• Delivering the outcome for the end customer

Now, that doesn’t mean that a company is only capable of focusing on one or that the two are at odds with each other—arguably, the best partner organizations in the market are able to deliver on both.

Where things get a bit tricky comes back to the principal-agent problem:

The principal-agent problem refers to the conflict of interests and priorities that arises when one person or entity (the “agent”) takes actions on behalf of another person or entity (the “principal”). The problem worsens when there is a greater discrepancy of interests and information between the principal and agent, as well as when the principal lacks the means to punish the agent. The deviation from the principal’s interest by the agent is called “agency costs.”

To put it simply, vendors often ask partners to take on a lot of risk to train staff to sell and deliver their solution but try to limit their investment when delegating this. On the other end, the partners try to mitigate this risk by training staff as little as possible (and often assigning lower performers to unproven solutions) and try to squeeze as much margin as possible from the vendor.

Both parties also try to play the game of having several strategic relationships in place, which means that vendors are often underinvesting because they are trying to have multiple partners in place “to increase distribution,” while the partners are trying to have access to as many vendors from a niche as possible to increase their chances of getting margin with a customer who wants a specific solution.

To add to the chaos, fundamentally, this relationship is there to serve the end customers, which means that both parties might change their behavior in order to satisfy a specific outcome for that customer, even if it goes completely against the interests of the “partner.”

The partner ecosystem

There are multiple ways that companies are approaching partnerships as a business motion. In SaaS sales, you will typically encounter:

Reseller: Acts as a middleman between the vendor and the end customer, typically focused on the contractual part of the arrangement. The most deeply embedded resellers with a customer tend to have overall procurement and licensing management responsibility, which is essentially outsourced to them. They sort of solve a distribution problem but not really, since their first priority is whatever the end customer wants.

Value-added Reseller/System Integrator: Typically a larger organization that is able to deliver an implementation, thus they get to both act as the contractual middlemen (sometimes) and deliver the outcome (always). As the reseller-only model has been fading into irrelevance, the VAR/SI type of partner organization has become one of the preferred ways to buy more complex software. Vendors also typically try to limit their services headcount, so this type of partner solves headcount problems for them. It’s not unusual nowadays for the majority of large RFPs to be released to a pre-selected group of SIs who then bid for them with their vendor of choice (or multiple ones if there are additional “bidding lots”).

Managed Services Provider: MSPs are an interesting type of organization since they can solve both a distribution and an outcome problem for the vendor. They do so by essentially agreeing to preferred terms with the vendors to utilize their software in a service, take a massive margin, and then offer a service to the end customers that utilizes the technology. MSPs are critical for scaling into markets like cybersecurity, where the end customers are chronically understaffed to run their own security operations. Even if you have the #1 product on the market and can implement it yourself, if your end users are incapable of using it day-to-day due to staff shortages, then you need MSPs to provide that headcount-for-rent. The problem with MSPs is that they really want that margin and are often vendor-agnostic in their approach to the business—they’ll sign a heavily discounted contract with no upfront commitment and then sell nothing because they prefer another vendor with an even more heavily discounted contract.

Distributor: This type of partner actually delivers on the premise of solving a distribution problem for the vendor by actively selling the product in their specific market. The main negative is that, in order to fund that, they will take a larger margin and also often have regional exclusivity, which means that if they underperform, there is nobody else to pick up the slack. Nowadays, they are more widely used in emerging markets.

OEM: This is when another software vendor utilizes part of your product as an embedded functionality within theirs. This is more typical with open-source vendors, but it’s possible in many other scenarios as well. The main aspect here is that the end customer is not aware that such a component is utilized (except for infosec disclosures and such) and will not notice it in day-to-day usage. It’s a unique model, as it fully solves a distribution problem (you don’t have to do anything to market it or train people on it), but at the steepest level of discounting compared to the other models (since the OEM typically uses a limited set of features).

CSP (Cloud Service Provider): This is again more utilized with open-source vendors. Essentially, you provide your product to a cloud service provider, and they offer a SaaS offering based on it. This was more prevalent before the advance of the cloud marketplace—nowadays, most vendors focus on offering their own hosted version.

Which leads us to the important question: where is the partner ecosystem headed in 2025?

Marketplace is the place

There are several trends that are now converging into one outcome—the domination of AWS/GCP/Azure Marketplaces as the default place for buying software, which has downstream effects across the ecosystem. Let’s look at the trends first:

Rent rather than buy software: The reseller-as-a-license-manager workflow makes much less sense if those licenses are temporary.

Cloud over on-premise: Customers are looking for cloud-first solutions that also fit their overall cloud strategy. The question is no longer whether to go on the cloud but how to maximize the ROI of the investment; thus, there is high interest in committed spend/consumption models with both the vendors and the hyperscalers.

Native integrations and managed services to achieve faster, improved outcomes: Customers want to acquire software that will benefit from the composability of an established ecosystem and require fewer resources to operate.

Cloud margins are lower: There is less space for middlemen when the business models operate on lower margins.

All of this leads to a situation where customers are much more likely to spend their IT budget on a large committed spend with a hyperscaler and then acquire products and services integrated on that marketplace. With high egress fees still being the norm, there is also a soft lock-in to the large players. Speaking of the large players, the only real game in town is AWS, GCP, and Azure—while there are many players that offer hardware-for-rent, they lack the synergies of both contractual and technical benefits. It’s a bit like the mobile phone ecosystem 10 years ago—while there were multiple alternatives in both hardware and software, the big winners ended up in a monopoly of iOS and Android. With Enterprise AI, the game is now over—all the hardware, software integrations, and deep ML know-how sit with those three players.

While private offers (the main transactional workflow for annual contracts) often allow for middlemen to be added, in practice, it has been quite difficult for end customers to justify the cost for that, and they have increasingly been transacting directly with the vendors and buying services separately if needed. Even services are now becoming something you can acquire using your AWS EDP, which means that procurement teams might never even leave the contractual and delivery framework offered by their marketplace of choice.

Everybody has a partner strategy until they get punched in the face

The reality is that you, as a sales rep, will have very limited influence or impact on the partner organizations that your company works with. They are typically managed by an internal partner team who will support you in those discussions when a specific partner needs to be involved.

The worst part is when this choice is forced on you by a customer. I mentioned earlier that many large RFP bids are being awarded to SIs that need to partner with a vendor for their winning bid. Sometimes they might simply give it to one SI, who will then shop around for their preferred solution. Sometimes there is an unusual reseller that acts as a procurement arm for the customer and is forced as a mandatory middleman in a deal. Sometimes you can pick your partner and drive an engagement with the customer, but if your company does not work with the right preferred partner, you will lose anyway.

Even if the right elements are in place, you still need to work with people to get things done, and the reality is that top-tier sales talent rarely works in a partner organization. Vendors simply pay more, both on average and at the high end. Expect a lot of order-takers without critical thinking capabilities or useful industry knowledge that will derail deals or lead to worse commercial structures.

This doesn’t mean that it’s impossible to have a productive relationship; however, the best scenarios typically involve a situation where the vendor can control the technical and commercial negotiation, while a partner delivers the outcome and has the capability to do so. This is the closest to a win-win you’ll get, and you don’t even need to lose money on the deal that goes to pay margin to a partner (although during the bull market, tech companies used to cover the reseller margin for compensation purposes; I expect this to go away).

My general advice is to be calculated in your expectations and approach with partner organizations. Qualify their capabilities and try to utilize them in a limited capacity to achieve a specific goal. As cloud marketplaces become the norm, if you are selling in a SaaS company, you should only work for companies that are represented there, and you should focus on getting your deals done through private offers.

This will provide you with the most benefits from a distribution perspective while minimizing the downsides and principal-agent dynamics that show up with resellers.

If you work for a high-end organization with a successful partner strategy, this would also solve a lot of problems for you because typically you will enter a dynamic that’s already been progressed to a favorable place.

For anybody else, assume that your company’s partner strategy is not sufficient to get things done at the level that you expect. It’s better to be pleasantly surprised than disappointed due to unrealistic expectations.