This article is written by Tristan Dibbens, CTO at Data Cubed. It aims to help a business consumer of software understand Vendor Lock In, and how to mitigate it when choosing new software.
What is vendor lock in?
Vendor lock in is a situation where it is costly to move a dependency for a product or service from one supplier to another (including moving in house). The higher the cost, the more perception of being locked in. Costs can be both direct and indirect – for example the indirect resource cost of re integrating with another, versus the direct cost of a licence.
Why does Vendor Lock In exist?
By choosing to utilise a product or a service, a consumer can easily become dependent on that product or service. Often this dependency comes with some kind of commitment, for example an amount of integration effort or a legal contractual obligation for a duration.
Most vendors provide a product or a service and need a perpetuation in the demand of that product or service to thrive in their market. The more regular and longer that their products are consumed, the healthier their position with regards to their competition.
Consider the term “Economic Moat”. This concept is considered by investors when evaluating if an organisation is worthy of investment. There are multiple aspects to consider. One aspect is the idea that to protect or increase an organisation’s competitive advantage over time, they attempt to ensure that their products and/or services are consumed for longer.
Often a vendor will look to actively build Vendor Lock In into their plan to help maintain a consistent pipeline of revenue. Some vendors are particularly well known for this kind of behaviour. A very large CRM provider being one that springs to mind, though definitely not limited to just them.
How do you mitigate Vendor Lock In?
In order to minimise the chances of being stuck in a locked in situation, an organisation must consider a number of factors:
- What are you trying to achieve?
- Is the solution readily available?
- What is your budget, both now and potentially in the future?
- How do you want to work with your suppliers?
Obviously there is no fixed recipe to prevent vendor lock in. It is something that is quite normal in any market place.
Things you can do to help
Most importantly, ensure that the plan has been socialised within your business and that you have a majority backing. Plans in isolation are liable to be undermined if not backed well within a business (especially if they result in limited business value, or contention!!).
For any new client, go to google and look for comparison sites. Look at various different sites and get a feel for where the potential product you are sourcing sits in comparison to its competitors. I’ve used G2 Crowd, Capterra, Quora, cloud market places like AWS/Azure and various others. Often vendors do their own comparisons. Obviously accept that there is a bias, however these articles may throw up some useful threads to pull on.
Ask around, find other organisations that might give you an unbiased view on their experience with the potential vendor.
Create a comparison matrix that includes not only the direct costs incurred for the new solution, but the indirect costs, the integration effort, and any dependencies that you might need to add down the line to add extra features. Ensure that the selection criteria link to your business objectives as well as those of your project objective.
This is a really critical area to work on. Your learnings here may save you pain down the line.
Knowing that new integrations are serviced by third parties is another critical element to understanding how much it will cost you to add further elements to the system design that might be dependent on the new product.
Many vendors deploy a partnership model. Sometimes this alone can make expanding any solution cost prohibitive. Additionally once you have invested in an expensive partnership integration, it is much harder to justify moving away from the product in question.
This is one of the biggest things that often gets forgotten.
By ensuring that you know what the costs of porting are, you can build that into any software cost strategy you create. Ensuring that you can get your data out at the end of the term is one thing, but knowing that it will cost you 5 – 10 days of resource adds another cost dimension. Make sure if you can that your contract includes short and long term exit strategies.
By designing your systems in a modular way, you promote interchangeability and make software tools more portable. If you are choosing ‘one size fits all’ vendors then make sure you include an exit strategy that takes into account the portability of features and the cost of retaining a ‘one size fits all’ platform in parallel.
This is not to say that starting off with a ‘one size fits all’ tool is unacceptable. At the beginning of an organisation’s life-cycle, or in the early days of a new venture, these kind of tools can be really helpful as a springboard. If chosen make sure that not too much effort is lost in integration and customisation that could have been used for better value in modular tool choice.
- Put the planning and research effort in up front in checking out any new potential vendor and their market place
- Consider your exit strategy – Protect yourself in the contract if you can, add exit clauses, include exit support
- Consider carefully where your ongoing software customisation effort is going to ensure that you are not compounding the Vendor Lock In scenario for yourself
From a business point of view, of course, we need to maximise our long-term revenue! However, our view is that nowadays customer service and the relationship, coupled with adaptability and collaboration, are far more important for endurance than tying a customer into a long-term contract with an expensive exit and limited support.
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