Vendor lock-in is an extremely unfavorable position all businesses can encounter. The negative market phenomenon became more prevalent with the advancement of digital technologies, more recently amplified by Cloud computing and SaaS appearance.
Businesses in a vendor lock-in conundrum can quickly lose competitiveness. What’s worse, they are very dependent and have a limited course of action at that time. One of the consequences can be weakened security, and we’ll see how these two connect.
What Is Vendor Lock-in
Vendor lock-in is when an enterprise is forced to continue using a specific service because switching to another vendor would have unproportionate negative consequences. Businesses must continue using the service or face a production halt, high migration risks, service quality reduction, increase in expenses, and a one-sided dependency upon a particular vendor.
Businesses try to avoid vendor lock-in as much as possible. However, there are benefits related to it if they have a positive, long-lasting relationship. Using a single vendor to streamline business processes can maximize contemporary benefits as both businesses adapt to each other. They can also work out better deals and future guarantees. Lastly, tech monopolies have the finances to provide outstanding service quality.
Unfortunately, beneficial situations arise only occasionally and are more of an exception to a rule. Vendors can manipulate prices knowing the other party depends on them. If newer and better service solutions come into play, it’s much harder to use them if an enterprise is intertwined in a vendor lock-in. Here are the most common negative outcomes.
Wasted Funds
Moving to a different platform may be impossible if you have invested in a specific service in vast amounts. This includes employee training, subscription fees, and contractual agreements that can bind a business for decades. Paying for a new service and previous contracts is too much of a financial burden for many small-to-medium enterprises. This leaves them locked in with the vendor that doesn’t necessarily provide the best product anymore, negatively impacting competitiveness.
Service Quality Reduction
It’s not uncommon for shady businesses to oversell their services to lock in future contractors. The lucrative deal turns bad once the vendor stops supporting the service with timely updates and bad response time. Due to binding contractual agreements or technological dependency, businesses cannot reorganize quickly enough to avoid service failures, which drives away consumers in an already unfavorable situation.
Infrastructure Decay
Let’s say you provide e-commerce services and use a third-party cloud computing vendor to handle data flow, storage, and security. What’s more, the relation with the cloud system is hard coded in your app, and its function is 100% dependent on the maintenance of the cloud service. You decide to upgrade your system with new technology, but the cloud backend systems do not accept data in another format, and the cloud service provider is unwilling to adapt. This will prevent you from upgrading your systems and can push you out of the market.
Vendor lock-in and Security
As you can see, vendor lock-in is closely related to software. Entrepreneur reports that 60% of small businesses shut down after experiencing a cyber attack with more and more hackers targeting unprotected business computer networks. This has more to do with vendor lock-in than it seems.
Software vulnerabilities are unavoidable as criminals tirelessly develop new hacking tools. These tools remain valid until cybersecurity professionals develop a cure, and so it goes. It’s essential to use services that release regular updates and patch their vulnerabilities, a practice that some vendors too often overlook.
This paves the way for a supply chain attack. These attacks aim at third-party contractors instead of the direct target, exploiting the former’s lack of cybersecurity preparation. Because your business is locked in with an insecure third party, you share its vulnerabilities and significantly increase the chances of getting hacked. This is an example of how vendor lock-in can indirectly halt business growth and cause significant damage.
Tips for Protecting Your Enterprise
Currently, some entrepreneurs discuss that avoiding some kind of vendor lock-in is impossible due to the extraordinary demand for software solutions. But there are steps you can take to minimize the risks, such as:
- Choose a responsible vendor. Cooperate only with vendors that can guarantee sufficient security, compliance, and software updates now and in the future. For example, choose a reliable cloud service provider with the resources to encrypt data and protect it in transit and on the backend.
- Avoid rigid contracts. The current market is extremely dynamic, and you should be mindful about binding for too long. If you believe the service you are subscribing to may quickly improve or even be replaced, consider how long you are willing to use the current version.
- Maintain data ownership. You should be the primary owner of business and consumer data. It’s best to use a standardized data storage format instead of aligning to a specific vendor. This way, you can easily migrate data from one server to another if you have to change services.
Lastly, keep a competitive mindset. Some aggressive companies look for opportunities to force smaller enterprises into a lock-in. Always think about your gains. They should come as a priority in the long-term partnership.
