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What Is Vendor Lock-in?

Posted on | April 6, 2010 | 2 Comments

After weeks of searching, you finally found it .. the killer application that adapts to your business perfectly and requires a minimal initial investment in the form of a license fee. You can’t wait to seal the deal, your job is about to become infinitely easier because support will be handled by the vendor. The initial in house estimates said developing the same thing would cost almost $20,000.00 and would take months to develop building on open source. You solved the problem with a yearly payment of $1500 and you get to stop working weekends. Or do you?

Unless you own or have a perpetual unconditional license to use the code, you are living in someone else’s place while renting the privilege to use it. Lets imagine a hypothetical, you rent your office space from me. You were a new start up, I had a great location. I did not mind allowing you to improve the place, I even gave you some credit to your rent to do so, under the condition that I own the improvements. You thought we had a great thing going and based critical business decisions on what my location afforded. Sure, the lease would expire in a year, but who would think that it could not be renewed after you planted roots in my place? After all, you’re sure I’m a great guy, right?

Now, imagine that I got sick of the real estate business, I sold everything I had to some big holding company for a big fat check. I’ve got bad news, you and everything you did are in need of a new place to exist in a few months once our lease expires. Going back to software, yep, I’m the guy who sold it to you, and I just sold it to my competition who plans to immediately discontinue it. Now what are you going to do?

When you plan is to simply use software, its easy to differentiate between owning it and having a license to use it. Consider this simple check list:

  • Does my license void or expire if I simply use the software as instructed?
  • Must I depend on an external entity to fix bugs or add features?
  • Does the software refuse to work if a licensing server can’t be contacted?
  • Will I have problems migrating my data to another solution?
  • Do I have to pay more for the same software as I grow?

If you answered yes to any of the above, you are locked in to a bad situation. The first item in the list is obvious, don’t pay for the same thing twice. The second item seems benign until you really need a ¬†feature implemented that the vendor feels is insignificant. The third item should alarm you, things happen and servers go down. Additionally, what about an intranet with no public access ¬†coming or going? Does the licensing server understand that people use a NAT and happen to use the same ISP? The fourth item is obvious, what happens if you want to move to something else? Is your data store in an undocumented format? Does it cost more to learn how to read it from your own programs?

The last item counts on pure apathy. Sure, you have ten users now and the license is good for twenty. What happens if the vendor re-structures the pricing and the path to upgrade costs thousands more than what you predicted? These are not straw man arguments, I’ve seen the worst case in all of the above. I would not waste my time writing about things that could go wrong, I’m writing about things that have gone wrong and will continue to go wrong far into the future.

Don’t run code that you don’t own or lack a perpetual, irrevocable license to run. Don’t buy stuff that prices per the user that wants to interact with it. Finally, don’t ever, ever get caught with your pants down waiting for bug fixes or feature enhancements from a company that just can’t or won’t produce them. Don’t be a consumer, be a customer and be extremely suspicious of anyone who faults you for wanting to cover your gluteus maximus.

I am aware that there are idealistic mantras that agree with me. I’m simply pointing out, idealism is born from practical thinking. Don’t buy yourself into a corner, the actual cost over time is likely quite a bit different than you envision if lost revenue and other factors count for anything :)

Next up, SAAS, look for it in a few days.

Comments

2 Responses to “What Is Vendor Lock-in?”

  1. senshikaze
    April 14th, 2010 @ 11:35 am

    i work in medical, and all of our “killer” apps are all subject to this. “Thankfully”, we use stuff from companies that are large (GE) in and out of the medical field. Though if GE ever went belly up (that would never happen /s) we’d be fucked.

  2. eid
    May 4th, 2010 @ 10:59 pm

    Microsoft bought ERP vendor Navision. They recently changed the game by requiring companies to pay 16% of their license value, per year, if they want the ability to buy more user licenses. There is also a 3 year penalty if you have not already been paying this. For some companies that is $100,000, just for the right to pay $5000 for another user license. They have until June to pay up or they are dead in the water.

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