Vendor lock-in

What it means

Vendor lock-in is a situation in which a company is so dependent on one technology supplier that switching to another is disproportionately expensive, slow or technically almost impossible. It mostly concerns software, cloud services and SaaS applications, but also hardware or specialised services. The company loses bargaining power and has to accept changes in prices and terms.

Causes include closed or proprietary data formats, missing or limited export, tight integration with the same supplier's other services, customisations that do not work elsewhere, long contracts with heavy termination penalties and know-how held only by the supplier's people. It often builds up gradually, without a conscious decision.

Not all dependence is bad. Deep integration with one supplier can bring efficiency and lower costs. The problem arises when the company does not recognise the dependence, has no exit plan and cannot react when the supplier raises prices, lowers quality, changes terms or goes out of business.

How it works in practice

When choosing a system we recommend counting the cost of a future exit as part of the TCO. The key questions are: can all data be exported in an open, usable format, is there a documented API, what are the termination terms and how much would data migration to another solution cost.

The contract should include the right to export data at any time and especially on termination, a period during which the supplier keeps and provides access to the data, assistance with transition and a clear SLA. For custom development, rights to the source code and documentation matter. European rules on data services are gradually strengthening customers' right to switch between cloud providers.

Open standards and open source components, separating critical data from the application layer and regular backups in an independent format also reduce the risk. For key systems such as accounting, it is worth testing the export from time to time to confirm the data are complete and readable outside the original system.

What to watch out for

Lock-in is usually discovered only when the supplier raises prices sharply or the company wants to leave. It then turns out that the export is incomplete, costs a lot or takes months. The exit plan should be ready at signing, not in a crisis. Even a good relationship with the supplier can change, for example if the supplier is sold.

Mind accounting and legal obligations too. A company must keep accounting records for the statutory period. If they exist only in a supplier's system to which access is lost after the contract ends, the company may breach its archiving duty. For every system you need to know how to reach the data after the relationship ends.