Vendor lock-in

From Wikipedia, the free encyclopedia

You have new messages (last change).

In economics, vendor lock-in, also known as proprietary lock-in, lock-in, or the Pottersville pattern, is a situation in which a customer is so dependent on a vendor for products and services that he or she cannot move to another vendor without substantial switching costs, real and/or perceived.

Contents

[edit] Forms of Lock-In

[edit] Computer Industry

Vendor lock-in can be used in the computer industry to describe the effects of a lack of compatibility between different systems.

Different companies, or a single company, may create different versions of the same system architecture that cannot inter-operate. This makes it difficult to switch to competing systems, often intentionally. Examples include the several slightly different implementations of various open standards, the many variations of Unix, Microsoft Office's file formats, and also Microsoft's software in general.

[edit] Microsoft

Microsoft software carries a high level of vendor lock-in, based on its extensive set of proprietary APIs.

The European Commission, in its March 24, 2004 decision on Microsoft's business practices, quotes, in paragraph 463, Microsoft general manager for C++ development Aaron Contorer as stating in a 1997-02-21 internal Microsoft memo drafted for Bill Gates:

"The Windows API is so broad, so deep, and so functional that most ISVs would be crazy not to use it. And it is so deeply embedded in the source code of many Windows apps that there is a huge switching cost to using a different operating system instead...
"It is this switching cost that has given the customers the patience to stick with Windows through all our mistakes, our buggy drivers, our high TCO, our lack of a sexy vision at times, and many other difficulties [...] Customers constantly evaluate other desktop platforms, [but] it would be so much work to move over that they hope we just improve Windows rather than force them to move.
"In short, without this exclusive franchise called the Windows API, we would have been dead a long time ago."

[edit] Apple Computer, Inc.

Apple Computer, Inc. is also sometimes accused of lock-in practices. Apple uses proprietary hardware that often cannot be replaced by 3rd party hardware of the same functionality. For example, Apple's software from the earliest version of MacWrite and MacDraw to the latest version of iLife all use proprietary formats that are not readable outside of Apple's hardware/software combination. With a small market share in computer hardware and software, there had not been any regulatory actions taken against Apple for lock-in for much of the company's history.

In January 2005, an iPod purchaser named Thomas Slattery filed a suit against Apple for the "unlawful bundling" of their iTunes Music Store and iPod device. He stated in his brief: "Apple has turned an open and interactive standard into an artifice that prevents consumers from using the portable hard drive digital music player of their choice." At the time Apple was stated to have an 80% market share of digital music sales and a 90% share of sales of new music players, which he claimed allowed Apple to horizontally leverage its dominant positions in both markets to lock consumers into its complementary offerings [1]. In September 2005, U.S. District Judge James Ware approved Slattery v. Apple Computer Inc. to proceed with monopoly charges against Apple in violation of the Sherman Antitrust Act [2].

On June 7, 2006 the Norwegian Consumer Ombudsman Bjørn Erik Thon stated that Apple's iTunes Music Store violates Norwegian law. The contract conditions were vague and "clearly unbalanced to disfavor the customer". [3] The retroactive changes to the Digital Rights Management conditions and the incompatability with other music players are the major points of concern.

[edit] Consumer Goods

This approach is not limited to the computer industry, however. For example, as of 2006, Sony digital cameras typically use Memory Stick cards that can only be acquired from Sony and a few select licensees, and this memory is typically much more expensive than alternative memory types available from multiple sources. Vendor lock-in for higher-end cameras takes the form of incompatible systems of lens mountings: a photographer who has purchased lens and other equipment from one manufacturer may find switching to a rival brand prohibitively expensive.

Vendor lock-in is not found only in high-tech industries. The Filofax brand of personal filing and diary products, for example, is not compatible with standard paper and ring-binder sizes, so users are forced to buy additional filing supplies only from Filofax or a limited number of other suppliers. Costs are several hundred percent above those of comparable stationery supplies in standard sizes and formats.

Similarly, Ikea only sells beds of European standard sizes in the US and the UK, where standard sizes are different, encouraging owners to buy their fitted bed-linen from the same supplier.

[edit] Loyalty Programs

One way to create artificial lock-in for items without it is to create loyalty schemes. Examples include frequent flyer miles or points systems associated with credit card offers that can only be used with the original company, creating a perceived loss or cost when switching to a competitor.

[edit] Connector Conspiracy

When a manufacturer designs a product, they may choose to make the connectors or protocols of a proprietary nature. While the motivation to do so may be to extract additional profits by forcing the consumer to replace all their accessories when they upgrade the core product,[3] it also may create a lock-in situation for the manufacturer due to the following:

  • Add-on enhancements must be purchased from the same manufacturer or a licensee, rather than from a third party. Since these add-ons are not transferable to a competitor's product, replacing the product involves purchasing new add-ons for the new system, potentially at an additional cost.
  • Replacement parts, or sometimes consumables, must be purchased from the same manufacturer or a licensee. If the cost of replacing the entire product is substantial, the consumer may be forced to purchase solely from the original manufacturer.

[edit] Lock-in versus Razor and blade

In the razor and blades business model, the non-consumable is inexpensive and the company draws its profits from the sale of consumable parts. To ensure the original company alone receives the profits from the sales of consumable, they use a proprietary approach to exclude other companies.

While the consumer is forced to purchase their consumables from a single source, this is often not lock-in because the cost to change, especially in the razor and consumer printer examples, is limited to the inexpensive non-consumable plus any unused, proprietary consumables remaining at the time of change.

[edit] Consequences

The extra costs to the customer create a situation which favors the vendor at the expense of the consumer. A monopoly may result when lock-in costs create market barriers to entry, and may result in antitrust actions from the relevant authorities (the FTC in the US).

Lock-in may eventually also be damaging to the company or industry in question. During the Unix wars, various Unix vendors battled so hard to lock their customers into their version of Unix that large sections of the fragmented Unix market adopted Windows NT instead[citation needed].

[edit] Avoiding vendor lock-in

In the 1980s and 1990s, public, royalty-free standards were hailed as the best solution to vendor lock-in. The weakness of such standards was that if one software vendor achieved a dominant market share, "embrace, extend, and extinguish" (EEE) tactics could be used to render the standard obsolete.

Since the late 1990s, the use of free/open source software (FOSS) has been pushed as a stronger solution. Because FOSS software can be modified and distributed by anyone, the availability of functionality cannot tie a user to one distributor. Also, FOSS tends to adhere faithfully to standards. The ineffectiveness of distributor lock-in means there's no incentive for FOSS developers to invent new data formats if usable (royalty-free) standards exist.

In particular, copylefted FOSS is particularly resistant to the above mentioned "EEE" tactics since anyone distributing modified versions cannot legally prevent free or competing redistribution of the modifications and their source code.

As of 2004, IBM is promoting and contributing to the development of certain FOSS projects to weaken the market dominance of competitors such as Microsoft. This is interesting and ironic, not only because IBM was once one of the biggest users of the vendor lock-in tactic, but also because IBM is simultaneously funding and promoting software patentability and Trusted Computing", two of the currently biggest impediments to FOSS development.

[edit] See also

[edit] References

  1. ^ "iTunes user sues Apple over iPod" from the BBC. Accessed January 6, 2005 from [1].
  2. ^ "Antitrust Suit Against Apple Over iPod, iTunes to Proceed" from findlaw. Accessed September 22, 2005 from [2]
  3. ^ iTunes violates Norwegian law. Norwegian Consumer Ombudsman. Retrieved on June 8, 2006.

[edit] External links

Retrieved from "http://en.wikipedia.org../../../v/e/n/Vendor_lock-in.html"
In other languages