Microsoft's partner model is changing — what it means for VARs

Microsoft's partner programme has been through significant changes over the past eighteen months, and if you're running or working in a VAR or MSP with a Microsoft practice, you've probably noticed. The new Solutions Partner designations (which replaced the old Gold/Silver competency model in 2022), changes to partner margins, and the growing emphasis on co-sell motions are reshaping what it means to be a Microsoft partner.

The competency model transition

The move from Gold/Silver competencies to Solutions Partner designations happened in October 2022. The new model is more capability-focused: you demonstrate performance metrics (customer adds, certifications, usage growth) rather than just holding a certain number of certifications and passing exams.

The intent is sound: Microsoft wants partners who are actively driving Microsoft workload adoption and customer success, not just holding legacy qualifications. The reality for many SMB-focused VARs is that the metrics are harder to achieve at smaller scale, and the bar has effectively risen for maintaining recognised partner status.

The margin story

This is the conversation nobody wants to have publicly but everyone's having privately. Microsoft has been adjusting partner margins on licences over the past few years. The headline number for most M365 licences is not what it was five years ago.

The implication: the model of taking a margin on Microsoft licence sales as a significant revenue contributor is under pressure. The Microsoft licensing business is commoditising. Customers can increasingly buy direct, through CSP aggregators, or through marketplace channels. The value that justifies partner margin needs to be clearly articulated, and "we manage your licences" is a diminishing differentiator.

The co-sell opportunity (and its challenges)

Microsoft's co-sell programme allows partners to jointly sell with Microsoft, accessing the Microsoft field sales motion and benefiting from Microsoft's customer relationships. For partners with significant IP (their own products, distinctive IP built on Azure, sector-specific solutions), co-sell is a genuine growth path.

For traditional VARs that primarily deliver Microsoft licensing and standard professional services, co-sell is less naturally applicable. The value proposition needs to be clear and distinctive enough that Microsoft field sellers want to bring you into their deals.

Where I think this is going

I think the traditional VAR model, primarily differentiating on price and relationship with margin on licence sales as a core revenue component, is going to find the next five years difficult. Not impossible, but difficult.

The partners I see thriving are doing one or more of:

• Building genuine IP: Sector-specific accelerators, automation frameworks, templates: something that justifies being in the deal beyond "we sell Microsoft licences."
• Deepening managed services: Moving from project delivery to ongoing managed service relationships, where the margin model is based on service delivery rather than licence margin.
• Specialising: Deep expertise in specific Microsoft workloads (security, Teams Phone, compliance, Copilot) rather than broad generalist coverage.
• Co-sell partnership: Building a genuine co-sell motion with distinctive customer-facing IP.

The Microsoft partner ecosystem is getting more competitive and the low end of the value spectrum is getting squeezed. The right response is moving up the value chain, not trying to defend the existing model.