Vendor lock-in

In economics, vendor lock-in, also known as proprietary lock-in or customer lock-in, makes a customer dependent on a vendor for products and services, unable to use another vendor without substantial switching costs. Lock-in costs which create barriers to market entry may result in antitrust action against a monopoly.

Other examples

• Many printer manufacturers claim that if any ink cartridges, beyond those sold by themselves, are used in the printer, the warranty of the printer becomes void. Lexmark goes farther, making ink cartridges that contain an authentication system, the purpose of which is to make it illegal in the United States (under the DMCA) for a competitor to make an ink cartridge compatible with Lexmark printers.^[1]
• Test strips for glucose meters are typically made for a specific make or model, as strips designed for Accu-chek devices, for example, are incompatible with meters from other manufacturers. This lack of standardization can lead to problems especially in developing countries, where glucose meters and their associated strips are a scarce commodity.^[2]
• The K-Cup single-serving coffee pod system was covered by a patent owned by Keurig, which is a subsidiary of Green Mountain Coffee Roasters, and no other manufacturer could create K-Cup packs compatible with Keurig coffee makers without a license from Keurig. While the company does have patents on improvements to the system, the original K-Cup patents expired in September 2012.^[3] Other single-serving coffee brands, such as Nespresso, also have proprietary systems.

Microsoft

The European Commission, in its March 24, 2004 decision on Microsoft's business practices,^[4] quotes, in paragraph 463, Microsoft general manager for C++ development Aaron Contorer as stating in a February 21, 1997 internal Microsoft memo drafted for Bill Gates:

Microsoft's application software also exhibits lock-in through the use of proprietary file formats. Microsoft Outlook uses a proprietary datastore file and interface which are impossible to read without being parsed. Present versions of Microsoft Word have introduced a new format MS-OOXML. This may make it easier for competitors to write documents compatible with Microsoft Office in the future by reducing lock-in. Microsoft released full descriptions of the file formats for earlier versions of Word, Excel and PowerPoint in February 2008.^[5]

Apple Inc.

Prior to March 2009, digital music files with digital rights management were available for purchase from the iTunes Store, encoded in a proprietary derivative of the AAC format that used Apple's FairPlay DRM system. These files are compatible only with Apple's iTunes media player software on Macs and Windows, their iPod portable digital music players, iPhone smartphones, iPad tablet computers, and the Motorola ROKR E1 and SLVR mobile phones. As a result, that music was locked into this ecosystem and available for portable use only through the purchase of one of the above devices,^[6] or by burning to CD and optionally re-ripping to a DRM-free format such as MP3 or WAV.

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.^[7] 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.^[8]

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".^[9]

As of 29 May 2007, tracks on the EMI label became available in a DRM-free format called iTunes Plus. These files are unprotected and are encoded in the AAC format at 256 kilobits per second, twice the bitrate of standard tracks bought through the service. iTunes accounts can be set to display either standard or iTunes Plus formats for tracks where both formats exist.^[10] These files can be used with any player that supports the AAC file format and are not locked to Apple hardware. They can be converted to MP3 format if desired.

As of January 6, 2009, all four big music studios (Warner Bros., Sony BMG, Universal, and EMI) have signed up to remove the DRM from their tracks, at no extra cost. However, Apple charges consumers to have previously purchased DRM music restrictions removed.^[11]

Lossy data compression

Converting lossily compressed data into another format usually either increases its size, or further decreases its quality.^[12] Thus compatibility with data in the old format may need to be kept when switching to a different format, even when decoding from (as with many MPEG formats), or distribution in (as has at least been planned with H.264) the old format requires paying royalties.

Distributed vendor lock-in

For compatibility needs, the choice to use certain methods and technologies is often more of a collective decision than the individual's. An extreme example is a format war, which leaves only one winning technology, and therefore absolutely no individual choice between technologies in the end. This phenomenon is driven by the network effect. However, if the winning technology is also monopolized by one vendor, this is arguably a kind of vendor lock-in, held in place by the network effect. The added switching cost, as perceived by the individual, is isolation from (the dominating technology in) society.

As a random blogger expressed:^[13]

If I stopped using Skype, I'd lose contact with many people, because it's impossible to make them all change to another[sic] software.

See also

• Embrace, extend and extinguish
• Free software
• Network effect – the benefit from having a large number of people using an agreed-upon format or vendor
• Path dependence
• Hardware restrictions
• Proprietary software

Notes

References

• Arthur, W. B. (1989). "Competing technologies, increasing returns, and lock-in by historical events". Economic Journal 97: 642–665. 
• David, P. A. (1985). "Clio and the economics of QWERTY.". American Economic Review 75: 332–337. 
• Liebowitz, S. J.; Margolis, Stephen E. (1995). "Path dependence, lock-in and history". Journal of Law, Economics, and Organization 11: 205–226. 
• Liebowitz, S. J.; Margolis, Stephen E. (1998). "Path Dependence" entry". The New Palgraves Dictionary of Economics and the Law (MacMillan). 
• Liebowitz, S. J.; Margolis, Stephen E. (1990). "The Fable of the Keys". Journal of Law and Economics 22: 1–26. 

External links

• Lessons from Format Wars has a section on Sony
• Vendor Lock-in Definition – by The Linux Information Project
• The Intertemporal Dynamics of Consumer Lock-In - by Gal ZAUBERMAN