Vendor lock-in happens when a customer willingly submits to a hardware, software, or service provider in exchange for a “must have” technology, making it difficult to switch to a competitor without substantial cost or effort. In almost all such situations, it's the provider that benefits most from the arrangement.
IT vendors offer multiple incentives to customers to remain within their portfolio of products, says Tim Potter, a principal with business advisory firm Deloitte Consulting. “Some common lock-in techniques include charging customers for data leaving the vendor’s platform or … providing additional services that work seamlessly with the vendor’s core product offerings, thereby making switching vendors less attractive.”
Another common lock-in method is foisting disincentives on customers that make it difficult to switch to another provider. “This can be done through the use of exclusive contracts or by limiting the amount of services that can be used from other providers,” explains Alaa Negeda, senior solution architect and CTO with telecom and technology services provider AlxTel.
Some vendors create a lock-in environment by linking customers to unique proprietary software or services. “The product exists within a closed system controlled by the vendor,” says Sampo Ahokas, co-founder and vice president of engineering at robotic process automation provider Robocorp. Such contracts require customers to turn to the vendor for services that may include an array of tasks, such as initial configuration, hard coding, or even troubleshooting. “Once implemented, users have little or no ability to move beyond the vendor’s baseline capabilities or framework without incurring large associated costs,” he notes.
Another lock-in trap is the vendor that refuses to integrate its offering with third-party software, forcing the customer to commit to its own, frequently inferior, alternative. “In these cases, the vendor may try to lead the customer down a rabbit hole of additional purchases, telling them that [its] software would best be suited with a pairing of another program they offer, which would be best suited with yet another program, and so on,” Ahokas explains.
Avoidance Tactics
The best way to avoid falling into a lock-in pit is to carefully research the vendor's options and terms before making a final commitment. “It’s crucial to carefully review the fine print when examining contracts to ensure that your organization understands any restrictions on the ability to switch to a different vendor,” Ahokas says.
When evaluating vendors, Potter recommends looking for candidates that expose public APIs and support seamless integration with other providers’ offerings. “As a part of an organization’s architecture governance process, it might be valuable to define an exit plan before bringing a new vendor, product, or service into the organization,” he notes.
Another way to preempt vendor lock-in is to stick to open-source software. “Choosing to adopt widely-used open-source projects means you have access to all the global development talent for those projects,” Ahokas explains. “Every time you or someone else contributes back to those projects, everyone reaps the benefits.”
“Open-source solutions backed by a strong developer and contributor community should not be ignored,” Potter says. “Open-source solutions can offer the same value as proprietary IT vendor services at a lower direct cost.”
Nonetheless, Potter stresses the importance of understanding an open-source offering’s total cost of ownership. Hiring and training support personnel, integration expenses, and ongoing support expenditures all add to the cost of operating and maintaining an open-source deployment, he notes. Yet Potter is generally positive about the approach. “In some cases, open-source solutions can provide significantly greater value than proprietary alternatives.”
Coping Strategies
Taking a modular software approach is yet another way to avoid lock-in. A modular deployment allows adopters to swap-out different parts of the system without having to replace the entire system, Negeda says. “This makes it easier to switch to a new supplier if the need arises.”
It also pays to work with a vendor that has a deep partnership base. Potter notes that highly effective vendors tend to focus on their core competencies while building a partner ecosystem in non-core areas to create value for their customers. “In many cases, a fully-managed vendor technology solution is more cost-effective and less risky than creating and operating the same service in-house,” he explains. “Choosing the right technology partners and maximizing the relationship can yield significant benefits while reducing the risk of a potentially unfavorable lock-in situation.”
Finally, Potter suggests that IT leaders should ask themselves if having a deep partnership with a particular IT vendor is really such a bad thing. “If the IT vendor is rapidly innovating, takes a truly customer-centric approach to enhancing and evolving their product offerings, and has not shown any sign of increasing fees or modifying their licensing terms, is it harmful to form a tight partnership with them?”
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