What Is a Vendor Lock-In?

Vendor lock-in refers to a practice in which consumers may be forced to stay with a particular vendor or face large switching costs. There are instances of vendor lock-in across nearly every industry, such as cellular phones that work with only one provider and software that requires a particular operating system (OS) to run. In some cases, a low cost product will be sold with the understanding that the consumer will need to purchase relatively expensive consumables to continue using it. Businesses can also experience vendor lock-in, particularly with certain implementations of technology, such as computers, software, and networks.

Proprietary lock-in and customer lock-in are two terms that have essentially the same meaning as vendor lock-in. Companies often use proprietary parts or components to force customers or clients to buy exclusively from them, so all three terms simply refer to different aspects of the same process. These lock-in practices are not typically regulated, but in some cases they can lead to anti-competitive behavior. If a company uses lock-in practices to force out the competition, it can result in governmental intervention in countries that have antitrust legislation.

There are often several companies in one industry that all use vendor lock-in to try and retain customers. The cellular phone industry is one example due to the way that carriers tend to subsidize the cost of phones. In this case, technology can be implemented to stop customers from taking a phone from one carrier to another. It is sometimes possible to get around this type of customer lock-in, but it typically requires a level of technological expertise that many consumers lack. Cellular carriers can also use another type of lock-in tactic that involves contract termination fees, which can make it very expensive for a customer to switch to a competing provider.

Another type of vendor lock-in works by selling a product that has a proprietary consumable component. Manufacturers of razors and printers both use this type of lock-in to retain customers. The product itself is typically sold inexpensively, after which the consumable item must be replaced on a regular basis. In this case proprietary consumables can lock-in a customer, but there is typically a lower cost of switching due to the initially inexpensive products.

Many businesses also deal with vendor lock-in, especially where technology is concerned. After a company invests in a computer infrastructure, it can be prohibitively expensive to change. This can also be true with proprietary software programs because the costs of switching to another vendor may be too high. Software that requires a particular operating system can also create a lock-in situation because switching to a competitor would mean losing that program.