Vendor Lock-in - Hidden Costs and How to Prevent Them by Barbora Thornton

Limited flexibility, hidden costs, and high risk of obsolescence - that’s the negative impact a vendor lock-in trap can have on your business. Information technologies are increasingly in the spotlight as more companies, individuals, and even governments automate, innovate, and digitalize. For many decision-makers, this is a new area. But even experienced customers can fall into vendor lock-in. It doesn’t need to be obvious at first glance, but making the right decisions upfront can save you from financial traps and dependency on a single IT solutions provider. So, what should you pay attention to, and how can you choose a safe and flexible solution?

What is a Vendor Lock-in?

Vendor lock-in is when you become so dependent on a specific vendor's product or service that switching to another provider would be too expensive, complicated, disruptive or even impossible or legally difficult. You might lose data, processes, money and a lot of company continuity. 

Off-the-Shelf IT Solutions as a Planned Vendor Lock-in

We see many examples of vendor lock-in in businesses. The most common - and often made as an informed decision - is choosing existing software products or solutions. You might decide to buy an ERP, CRM, data processing software, warehouse management system, accounting software, etc. You painstakingly transfer your company data, let the provider customize the product, and may even adjust some company processes to fit the product. You pay the price and often a monthly fee for licenses, users, support, and customization. It’s set up, and you hope that the vendor’s pricing won’t change dramatically, that the vendor won’t go out of business, and that your company or market needs won’t require you to change or upgrade the solution. Choosing this route is generally an informed decision and traditionally safe, with most risks considered beforehand.

• Map your company’s needs to decide between a product or custom-made solution.
• Spend time investigating products to find the one best suited to your key processes and data structure.
• Some vendors offer unique tools to automate tasks and workflows within their platforms. Adjusting daily operations to these tools means that switching vendors would require recreating workflows, which could disrupt business and require retraining.
• Use an established solution provider with a solid infrastructure.
• Get to know the pricing structure, including costs for customization, number of users, support, and past pricing changes.
• Ensure the product has straightforward import, export, and backup solutions for your data, and that you retain the rights to your data.
• When companies invest heavily in training staff on a vendor’s tools or require vendor-specific certifications, employees become very familiar with the system. Switching vendors would mean retraining, which can be costly and slow down work.
• Some vendors provide AI tools trained specifically for their systems. If a business relies on these tools for critical tasks, leaving the vendor could mean losing valuable data or needing to retrain models with new data - an expensive and time-consuming process.

Custom Software Vendor Lock Potential

Sometimes, custom software is the way to go. Just a disclaimer - if you decide on custom software development with Moravio, we will always discuss the potential use of existing products or solutions as part of the custom project, to reduce costs, speed up development, and avoid reinventing the wheel.

In general, people see vendor Lock-in-in as a situation where they’re stuck with one provider. Custom software development, on paper, seems to resolve this - since the software is "yours," theoretically, anyone could take over. Custom software offers greater control and flexibility, and while the initial investment may be higher, it often pays off in reduced long-term risk - but only if you’re aware of a few critical aspects. Let’s look deeper.

Apart from the obvious traps, here are some others you should be aware of. A good IT provider will cover these and inform you about them.

• Licensing. While it might seem obvious to check licensing when buying off-the-shelf products, licensing can also affect custom software development. Sometimes, by law or by design, you might only get a limited license, with ownership remaining with the provider. At Moravio, we always grant our clients unlimited licenses for everything we create, and we ensure this is also covered with our subcontractors.
• Database Constraints. Proprietary databases often store data in unique formats or use vendor-specific query languages, making it difficult to transfer data seamlessly to other platforms, leading to costly migration challenges if you decide to switch providers in the future.
• Unique Frameworks or APIs. Some companies use highly specific or even proprietary “programming languages.” While they may present this as a custom solution, it’s actually a form of vendor lock-in. Switching developers or bringing maintenance in-house becomes challenging. Future developers might face a steep learning curve or even need to rebuild parts of the application to make it compatible with more widely supported technologies, increasing dependency on the original vendor for updates and support.
• Intellectual Property Rights. Intellectual property is a critical part of any service. In some countries, one can’t simply transfer intellectual property rights; similar to licensing, it must be covered in the contracts. This includes all parties down the supply chain (contractors, subcontractors, etc.). Although it may not be an immediate issue, it can become significant if the client expands or if investors or government entities get involved.
• Ecosystem Integrations. Many businesses use multiple tools from the same vendor - such as cloud storage, chat apps, and data analytics. Over time, these tools integrate smoothly, and switching vendors would mean finding replacements for each tool and setting them up again, a costly and complex process. Always confirm that any third-party tools or other vendor products integrated into your custom solution are well-documented and covered in the contract.
• Lack of Documentation. While not strictly vendor lock-in, a lack of detailed documentation can create a similar dependency. Without clear documentation, companies become reliant on the original vendor for support, updates, and troubleshooting. If you want to move to a new provider or bring development in-house, lack of documentation can create significant obstacles. New developers struggle to understand the system, and even minor changes may require going back to the original vendor. 

Note from Moravio: From our own in-house experiences and from our project rescue work for our clients, we know firsthand how crucial it is to share knowledge and document work thoroughly. Sometimes, software solutions in big companies are dependent on a single employee, and if they leave, even we might find ourselves locked in.

Bonus: Vendor Lock-in in Cloud Computing

What is Cloud Computing? Cloud computing is the delivery of IT resources and services, such as storage, servers, databases, networking, software, and analytics, over the internet (the “cloud”) instead of through local hardware. It enables businesses and individuals to access scalable and on-demand computing power without the need for owning and maintaining physical infrastructure, offering flexibility, cost efficiency, and global accessibility. However, it comes with its own form of vendor lock-in, which can significantly impact a company’s agility and long-term costs.

Vendor lock-in in cloud computing occurs when a business becomes heavily reliant on a specific cloud service provider’s infrastructure, tools, or ecosystem, making it challenging to switch providers or bring workloads back in-house. This dependence can result from technical, operational, or financial barriers.

Common Causes of Cloud Vendor Lock-in

• Proprietary APIs and Tools. Many cloud providers offer unique tools and APIs to enhance productivity and streamline operations. While these proprietary features can be beneficial, they are often incompatible with other platforms. Transitioning away from these tools might require significant reengineering of applications.
• Data Storage Formats. Data stored in proprietary formats or hosted on specific cloud-native databases may be difficult or costly to migrate. Additionally, data egress fees charges for moving data out of the provider’s platform can add to the financial burden.
• Integrated Ecosystems. Cloud providers’ services often work together ideally, creating an ecosystem that’s hard to replicate elsewhere. Moving to another provider may involve replacing multiple interconnected services, which can disrupt workflows and require extensive retraining.
• Long-term Contracts. Providers often offer discounted pricing for long-term commitments, such as reserved instances. Breaking these agreements to switch providers could result in penalties or loss of investment.

How to Mitigate Cloud Vendor Lock-in

• Choose Cloud-Agnostic Solutions. Opt for tools and frameworks that work across multiple cloud platforms. Technologies like Kubernetes for container orchestration and Terraform for infrastructure management help maintain portability.
• Ensure Data Portability. Store data in non-proprietary formats and regularly back it up to alternative locations. This ensures that critical data can be moved without significant rework or cost.
• Adopt a Multi-Cloud or Hybrid Approach. Distribute workloads across multiple providers or combine cloud and on-premises solutions to reduce reliance on any single vendor.
• Negotiate Contracts Carefully. Include clauses that minimize penalties for leaving and require the provider to assist with data migration if needed.
• Audit Dependencies Regularly. Periodically assess your reliance on cloud-specific features and tools to identify potential risks and alternative solutions.

Conclusion and key takeaways

• Know your Rights to Data and Intellectual Property. Always insist on ownership or unlimited license.
• Short Term vs. Long Term costs. Look into the future and don’t let the lower initial cost to pursue you for a solution, that you might have to completely abandon in the future.
• Check for Compatibility. Know your processes, and tools and have an understanding of your data structure. If you don’t know the answers straight away, always ask for a second opinion, and don’t let the vendor talk you into a potential lock. 
• Prioritize Portability. Use cloud-agnostic tools and frameworks to reduce reliance on specific platforms.

As in many other industries, a “hybrid” solution is often the best approach. Some off-the-shelf solutions require extensive customization (leading to custom software development), while some custom software products use off-the-shelf solutions for specific components. The best way to avoid vendor lock-in is to understand what it entails and have a clear dialogue with your chosen vendor from the outset. 

At Moravio, we prioritize legal coverage and prevent any type of vendor lock-in. Although not all lock-ins can be avoided, we always stand by our clients, even if that means helping them reduce dependency on us in the future. We aim for relationships built on “I want” rather than “I don’t have any other option”.