What is vendor lock-in?
Vendor lock-in happens when a customer becomes dependent on a vendor’s products or services, making it too costly or challenging to switch to alternatives. The customer has no other choice but to stick with the said vendor, leading to higher costs and limited flexibility.
Hard to understand? Here’s some vendor lock-in examples.
Remember when Apple forced us to download iTunes to listen to music? Apple did this so that music can only be purchased through iTunes and not other apps if you want to play it on iPod or iPhone. They exclusively control the customers.
In the business world, companies might catch themselves relying on a specific software and transition to another one seems nearly impossible or requires lots of resources. This usually happens with cloud computing and SaaS, since companies apply for a subscription to use. Meanwhile, the ownership still belongs to the vendor, and they control cost, system and features upgrade.
How vendor lock-in happened?
Vendor lock-in mostly happens when there is an imbalance between the costs and benefits of system replacement that the organization will experience. To be more specific, here are a few indicators:
- Sunk costs: This is the amount of money you invested in the service. Depending on whether this product is a customized version or an existing template, it still incurs costs, in terms of copyright, registration fees or maintenance costs. Too high sunk costs make it difficult for users to look for new system services and abandon the system that they have previously invested heavily in. On the other hand, sunk costs are also the fixed price that the company will have to continue to pay to maintain use of an incomplete system.
- The actual expense: The price to replace and update the said systems. Implicit costs, such as time spent on tendering or procurement processes, are also included. A too high number can make you skeptical in taking action.
- Some licensing terms can be a rabbit hole that lead to vendor lock-in. For example, you may have obtained a discount in exchange for agreeing to use the product for a specified period of time. Or certain partnership agreements or other corporate partnerships, for example, may compel you to use a specific product even if superior options exist.
- If a technology is your core or you have been using the application for too long, it can be hard to change. Simply because your operation evolves around it and all your data is integrated within it. The cost of changing includes migration, security concerns and iteration, can be a huge disruption. Because of this, many businesses choose to compromise and continue to work with an outdated system.
- Moving to a new system is always fraught with danger. The main risk considerations are data movement and reformatting. Some vendors may also utilize less common or poorly specified data models, complicating transfer. For many businesses, the risk of data loss is simply too big, preventing them from adopting more effective software solutions.
- Your internal culture can also promote vendor lock-in, commonly known as resistance to change. Employees at all levels become accustomed to specific procedures. They may be hesitant to learn new systems and skeptical about the need for change.
The risks of vendor lock-in
The truth is that vendor lock-in always happens, from the moment you sign up for a subscription. It’s not always bad (which we will explain in the latter parts) but being too dependent can be a double-edged sword in the long run.
- The most apparent risk is how vendor lock-in makes it hard to adopt other tools. Some applications lack compatibility and portability, and some vendors dislike integrating their systems with others. Since you hang on their playground, the last thing you can do is accept or find other tools, hoping they might accept this one.
- Assume that, for some reason, the vendor’s service quality deteriorates over time. Or if it never reaches the promised level. Meanwhile, your business is still scaling, and more requirements are piling up which grow out of the application’s capability. Once you’ve committed to one cloud vendor, you’re stuck with them – even if their services fall short of your expectations.
- What if the vendor radically shifts and modifies the product offering to the point that it no longer meets your requirements? Again, you’re at their mercy and powerless to intervene. Expect significant expenditures and technical challenges if you wish to switch vendors.
- Depending on their strategy and many other things, a seller may make additional changes to the offer and you’re more vulnerable to price hikes. When carriers do this, they know that their consumers would prefer to pay rather than incur the costs of transferring to a rival vendor.
- Finally, a merchant may go out of business entirely! That is unlikely for Amazon, Microsoft, or Google, but it is possible for smaller providers.
Best strategies to navigate vendor lock-in
Avoiding vendor lock-in is the priority of 37% of companies during cloud migration.
As I mentioned before, vendor lock-in is unavoidable. But you can totally mitigate its effect by preparing ahead of the storm. Most businesses realized the impact of vendor lock-in too late to the point where nothing can be done. They can only stay with it or invest in a slump dump for a transition.
So, here’re are some of our suggestions:
1. Learn about your partner and license
You must read the small print in your licensing agreements. Pay close attention to auto-renewal conditions, support arrangements, and any conditions imposed on you and your business’s future strategy.
Some question you might want to look at includes:
- How can you access your data after the contract expires?
- What happens if they can no longer service the product?
Unless you have complete trust in the vendor, you should also be cautious about signing up for tools that come with restrictive multi-year agreements. Sometimes, a vendor does this and gives you a big benefits package or discounts, which is very attractive and hard to leave behind.
2. Discuss an exit plan with your vendor before signing anything
Most vendors have the requirement to notify them 30 days or more before your exit. What can happen in 30 days? Well, they might give you some consultation on what they would do to change the application to be better for you or suggest a “special” subscription plan to keep you attached.
What about you? Do you have any obligations to protect your exit plan like theirs? For example, if you want to switch vendors, you must verify that your seller will assist you with the data exportation and migration.
This is significant because vendors are infamous for being unhelpful once they learn you intend to leave them for a competition. The simplest way to avoid a potentially unpleasant and antagonistic situation is to include in your contract SLAs for deconversion assistance with your provider.
3. Consider alternatives tech solutions
To avoid vendor lock-in, you can switch to a solution that offers more space to control your usage or something entirely belongs to your ownership.
Private Cloud: a hosting environment dedicated to your organizations only.
Best for: Businesses who want the same degree of control that on-premises gives but with the extra security and scalability of the cloud.
Customizable and more secure means you need to invest more in setting up and maintaining the hosting. There’re some private cloud vendors on the market, but if you buy from them, there are still some vendor lock-in risks, though minimized.
Multi-Cloud: when you utilize more than two public cloud computing services.
Best for: Organizations seeking the greatest flexibility in their managed services but do not have the resources to invest in a private one.
The risk is distributed, allowing you to select best-of-breed solutions. This strategy necessitates specialized knowledge of several platforms and providers, but it also aids in negotiating the best pricing per platform.
Hybrid Cloud: combines two or more computing environments that are not the same kind.
Best for: Organizations seeking multi-cloud flexibility while maintaining control over on-premises and private cloud architectures.
It preserves flexibility, spreads risk, and allows you to select the optimal choice for various use scenarios. This design can assist in increasing the agility and innovation required to respond to business demands while maintaining operational autonomy.
Go entirely on-premises with Custom Software Development: From building your application from scratch, storing data in your internal system, and maintaining the system in-house.
Best for: Companies with substantial resources and want to maximize control and have 0% of vendor lock-in
Tips: Not every business can go with lengthy custom development, so they choose something in-between, which is low code. This technology utilizes a platform with pre-built code block that you can quickly assemble an application, then add customized code afterwards if needed. This offers a rapid development process, saves resources and creates the best-suited solution for your team.
Yet, you are still using a platform from a vendor, so there’s still a certain risk of vendor lock-in. However, with low code, it’s very minimal. Some platforms allow you to extract and migrate your data and app’s code into another system after you stop using their platforms. This ensures that you can rebuild your app and protect your data.
Synodus is a qualified software developer! We have helped multiple clients to leverage the power of low code without being vendor lock-in. Explore our custom low code services and Talk to our experts if you’re interested!
4. Increasing portability with open-source system
Using open-source technologies and modern standards will help to avoid being bound by proprietary standards. The key is maintaining an open-format-first strategy when designing applications, helping you select the right tool when needed. Choosing tools based on their capabilities rather than the vendor’s reputation can avoid the unfulfilled ones that cause vendor lock-in.
Another thing you can do is leveraging modular architecture by dividing your application into manageable chunks with reusable components. Doing this can increase the application’s portability if you decide to switch between service providers.
Tips: Talking about modular architecture and reusable components, low code is best! Not only does it offer pre-built code blocks that can be used for multiple purposes and types of applications, but you can also build one yourself, save it and use for later!
5. Backup your data
Having a backup reduces your reliance on your vendor. This is a safety net since these data have yet to be altered to fit the vendor’s system. If one day you decide to switch, you can save tons of headaches on data exportation and migration.
You can try the 3-2-1 rule to avoid vendor lock-in, a widely used strategy for maximizing data recoverability and preventing it from being corrupted:
- Make three copies of all important files you wish to safeguard, so you have two backups and one primary file.
- Keep these files on two distinct media types to be immune to a broader range of attacks.
- Keep one copy outside of your workplace, home, or off-site storage.
But is it always bad? When is vendor lock-in good?
If vendor lock-in is unavoidable, the best we can do is to hope that we can get some benefits out of the situation. And thank God, vendor lock-in has both pros and cons.
Going all-in for a vendor might allow you to build a centralized system where everybody is using the same tools and data is kept in one place. They are better integrated, hence you can save many resources and become more agile. This is what we usually see with Microsoft Office or Salesforce and AWS package.
Yet keep in mind that these are giants of tech space. They can continue to support you for years and offer a broad range of services. For smaller vendors, these are pretty much unsure.
Second, if your relationship with the vendor is good, you can easily get away with a fair price and better support. But of course, these perks might not always last. And is it worth risking once the application falls behind your expectation or once you and your vendor start to go different ways?
Evaluate the level of lock-in with your vendor
How do I know if my vendor lock-in case is bad or good? How can I identify the level of lock-in my business is facing?
Unfortunately, there is no exact measure to say. But you can use some of these questions to analyze if you should move away from your vendor or continue your subscription.
- Calculate the adoption rate: How many executives are using them daily? How many processes are being automated thanks to it? If the answer is too low, you should consider removing it, as its existence doesn’t bring any benefit to your team.
- How long have you been using the app? Long time sometimes indicates a strong case of vendor lock-in. Some businesses still use legacy systems because their data is saved on these, not necessarily because they’re still in good use.
- What is your current business need? Is the application still adaptable to them after a time of being used? If your business has grown out of the application, it might be time to consider another.
- How many did your executives struggle to adopt the app or change their way of work to be able to say the app? Of course, if it’s a lot, you might have vendor lock-in.
- Rewatch your contract terms: To see if there’s anything that accidentally locks you in the future.
- Calculate the opportunity cost if you switch to another vendor.
If you find yourself being vendor lock-in, here’s what to do
It’s unfortunate finding your business being in the situation, but there are ways to break free from vendor lock-in:
- Identify the root of your vendor lock-in: Is it because of financial problems, licensing terms or are your teammates too resistant to change? Asset your current vendor relationships and analyze your dependencies.
- Review your contract and agreement: To understand the terms, conditions, and any exit clauses that might be in place. Is there any part that might be a disadvantage to you? You can consult a legal executive if necessary.
- Before ending anything, seek alternatives first: What if there’s no better alternatives? You don’t want to risk it all.
- Negotiate with the Vendor: If possible, engage in negotiations with the vendor to discuss your concerns and explore ways to reduce your dependency. This could involve renegotiating terms or seeking more flexible arrangements.
- Plan a Transition: If you decide to move away from the vendor or reduce your dependency, create a detailed transition plan. This plan should include timelines, resource allocation, and a clear roadmap for migrating to new solutions. You can ask your current vendor for help, if they are supportive.
- Legal and Compliance Considerations: Ensure that any transition or change in vendors complies with legal and regulatory requirements. Consult legal experts if needed.
- Inform your team and make sure they are onboard. You should also provide training if needed.
Build application with control & freedom with Synodus!
Building software from scratch or Using Low Code to minimize your vendor lock-in, whatever you wish, we are here to cook it up!
Synodus is a growing custom software company as recognized by Clutch and the gold partner of Microsoft. We are not just execution-only developers but your also partner, where our focus lies on 3 core pillars:
- Adopt a diverse development method to optimize all your resources, from technical, time to financial, for enterprises, SMEs to startups.
- Consultation goes along with development to ensure your solution matches and scales with business needs. At the same time flexibly adopt emerging tech of blockchain, machine learning, AI, low code, cloud & IoT.
- How we can instill your trust through transparency communication, no fog of tech process and business-centric approach.
Learn what our team of 250+ mavericks can help you transform digitally, without being vendor lock-in:
- Custom software, mobile app & web development
- IoT, Core System, Cloud & on-premises development
- Blockchain Development
- MVP to Full-fledge product design & development
- Data Analytics services
- Low Code Development
- Technical Assistance & Business Consultation
Successfully delivered more than 100 projects in the last 4 years with an 88% satisfaction rate, we proudly work with clients across industries and of all sizes, act as a supercharge for your business accelerator.
Custom development is one of the best ways to avoid being vendor lock-in. But we understand not every business can handle such tedious work. With the help of technology, there’re multiple ways to speed up this process!
More related posts from Software Development blog you shouldn’t skip:
