Vendor lock-in


In economics, vendor lock-in, also known as proprietary lock-in or customer lockin, makes a customer dependent on a vendor for products, unable to use another vendor without substantial switching costs. In information technology, vendor lock-in is frequently discussed in the context of cloud computing, where proprietary interfaces and data transfer constraints can increase the practical difficulty and cost of moving workloads and data between providers. Policymakers have also treated switching barriers in cloud services as a competition and governance issue; for example, the European Union's Data Act includes provisions on switching between data processing services.
The use of open standards and alternative options makes systems tolerant of change, so that decisions can be postponed until more information is available or unforeseen events are addressed. Vendor lock-in does the opposite: it makes it difficult to move from one solution to another.
Lock-in costs that create barriers to market entry may result in antitrust action against a monopoly.

Mechanisms

In technology markets, switching costs that contribute to vendor lock-in may arise from a mix of technical and organizational factors. Reviews of cloud computing adoption have emphasized interoperability and portability limitations as recurring contributors to lock-in concerns. Competition policy analyses have similarly noted that pricing and commercial practices can raise switching costs in cloud services and contribute to customer lock-in.
Lock-in risks are often discussed alongside the related concepts of interoperability and portability. International standardization work has provided terminology and conceptual models for these aspects in cloud computing.

Lock-in types

MonopolisticCollectivePopular term
No
NoTechnology lock-in
YesVendor lockin
YesVendor lockin

; Monopolistic : Whether a single vendor controls the market for the method or technology being locked in to. Distinguishes between being locked to the mere technology, or specifically the vendor of it.
This class of lock-in is potentially technologically hard to overcome if the monopoly is held up by barriers to market that are nontrivial to circumvent, such as patents, secrecy, cryptography or other technical hindrances.
; Collective : Whether individuals are locked in collectively, in part through each other. Economically, there is a cost to resist the locally dominant choice, as if by friction between individuals. In a mathematical model of differential equations, disregarding discreteness of individuals, this is a distributed parameter system in market share, applicable for modeling by partial differential equations, for example, the heat equation.
This class of lock-in is potentially inescapable to rational individuals not otherwise motivated, by creating a prisoner's dilemma—if the cost to resist is greater than the cost of joining, then the locally optimal choice is to join—a barrier that takes cooperation to overcome. The distributive property alone is not a network effect, for lack of any positive feedback; however, the addition of bistability per individual, such as by a switching cost, qualifies as a network effect, by distributing this instability to the collective as a whole.

Technology lock-in

As defined by The Independent, this is a nonmonopoly, collective kind of lock-in:
Examples:
Technology lock-in, as defined, is strictly of the collective kind. However, the personal variant is also a possible permutation of the variations shown in the table, but with no monopoly and no collectivity, it would be expected to be the weakest lock-in. Equivalent personal examples:
  • A person who has become proficient on QWERTY keyboards will have an incentive to continue using QWERTY keyboards.
  • A person who has become proficient at using a DAW's MIDI piano roll for composition and editing will have an incentive to keep using applications that provide a piano roll, as opposed to traditional Western musical notation or a music tracker.
  • A car owner has an incentive to make use of their car, because gas and eventual maintenance from wear and tear is cheap compared to the cost of the car itself and the cost of insurance ; the car is said to be a sunk cost.
  • A person who has ripped their CD collection to MP3 will have an incentive to prefer audio equipment that supports this format; and vice versa, for personal investment reasons, has an incentive to continue ripping to this format.
  • A person who has most of their multimedia equipment interconnected with HDMI will tend to seek HDMI compatibility to all their other multimedia-capable equipment.

    Collective vendor lock-in

There exist lock-in situations that are both monopolistic and collective. Having the worst of two worlds, these can be very hard to escape—in many examples, the cost to resist incurs some level of isolation from the society, which can be socially costly, yet direct competition with the dominant vendor is hindered by compatibility.
As one blogger expressed:
While MP3 is patent-free as of 2017, in 2001 it was both patented and entrenched, as noted by Richard Stallman in that year :
More examples:
  • Proprietary file formats that have become widespread on the Web: examples include GIF, Adobe Flash and H.264.
  • Communication services that require membership with the same vendor as the communication partner: Unlike telephone service providers or email service providers, which enable communication with competing providers' users, services like Skype and Facebook are effectively single-vendor communication protocols. Facebook is said to have achieved technological lock-in, in terms of its self-reinforcing presence on a society level. However, if the lock-in is to Facebook specifically, not social media in general, then it is fair to promote this title to collective vendor lock-in.

    Examples

Microsoft

The European Commission, in its March 24, 2004 decision on Microsoft's business practices, quotes, in paragraph 463, Microsoft general manager for C++ development Aaron Contorer as stating in a February 21, 1997 internal Microsoft memo drafted for Bill Gates:
Microsoft's application software also exhibits lock-in through the use of proprietary file formats. Microsoft Outlook uses a proprietary, publicly undocumented datastore format. In 2007 Microsoft introduced a new format MS-OOXML for their office suite; However Microsoft do not claim to support this as their default file format, instead stating that the default is an "XML-based" file format. Additionally, Microsoft introduced a new undocumented line break algorithm for Microsoft Word 2013 onwards, this was after ODF and OOXML standardization. The secret algorithm/s were reverse engineered 13 years later with financial support from the European Commission, benefiting competing office suites LibreOffice, Collabora Online, and others.

Apple Inc.

Prior to March 2009, digital music files with digital rights management were available for purchase from the iTunes Store, encoded in a proprietary derivative of the AAC format that used Apple's FairPlay DRM system. These files are compatible only with Apple's iTunes media player software on Macs and Windows, their iPod portable digital music players, iPhone smartphones, iPad tablet computers, and the Motorola ROKR E1 and SLVR mobile phones. As a result, that music was locked into this ecosystem and available for portable use only through the purchase of one of the above devices, or by burning to CD and optionally re-ripping to a DRM-free format such as MP3 or WAV.
In January 2005, an iPod purchaser named Thomas Slattery filed a suit against Apple for the "unlawful bundling" of their iTunes Music Store and iPod device. He stated in his brief:
At the time, Apple was stated to have an 80% market share of digital music sales and a 90% share of sales of new music players, which he claimed allowed Apple to horizontally leverage its dominant positions in both markets to lock consumers into its complementary offerings. In September 2005, U.S. District Judge James Ware approved Slattery v. Apple Computer Inc. to proceed with monopoly charges against Apple in violation of the Sherman Antitrust Act.
On June 7, 2006, the Norwegian Consumer Council stated that Apple's iTunes Music Store violates Norwegian law. The contract conditions were vague and "clearly unbalanced to disfavor the customer". The retroactive changes to the DRM conditions and the incompatibility with other music players are the major points of concern. In an earlier letter to Apple, consumer ombudsman Bjørn Erik Thon complained that iTunes' DRM mechanism was a lock-in to Apple's music players, and argued that this was a conflict with consumer rights that he doubted would be defendable by Norwegian copyright law.
, tracks on the EMI label became available in a DRM-free format called iTunes Plus. These files are unprotected and are encoded in the AAC format at 256kilobits per second, twice the bitrate of standard tracks bought through the service. iTunes accounts can be set to display either standard or iTunes Plus formats for tracks where both formats exist. These files can be used with any player that supports the AAC file format and are not locked to Apple hardware. They can be converted to MP format if desired.
As of January 6, 2009, all four big music studios have signed up to remove the DRM from their tracks, at no extra cost. However, Apple charges consumers to have previously purchased DRM music restrictions removed.