10/12/1999
Lock-in. It's the term Carl Shapiro and Hal R. Varian use to describe what happens when the high cost of switching from one brand of technology to another effectively locks users into their current system or brand. "Lock-in," they write in their book Information Rules: A Strategic Guide to the Network Economy, "can be a source of enormous headaches, or substantial profits, depending on whether you are the one locked in the room or the one in possession of the key to the door." In this excerpt, they offer tips to help buyers of information technology — large or small — avoid lock-in.
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Just about everyone in today's economy is a buyer of information technology — whether the buyer is a home-based entrepreneur purchasing a personal computer or a piece of software; or the CIO of a large company purchasing an entirely new database system. The authors of Information Rules: A Strategic Guide to the Network Economy offer some strategies to help customers minimize their chances of getting "locked-in" to the products and services they purchase, or at least be compensated for the lock-in that they must endure. Some of these strategies apply to all buyers of information technology; others specifically to larger businesses or corporations:
Avoiding Lock-In:A Buyer's Checklist
- Look ahead and reason back. Bargain for initial sweeteners, such as discounts or support for switching from your previous system, which can compensate you for future lock-in.
- Don't be too anxious. Prior to becoming locked-in, convey the impression that your benefits from switching are small and the costs large.
- Depict yourself as an attractive customer based on your own future purchases and/or your ability to influence other lucrative purchasers.
- Seek protection from monopolistic exploitation down the road. Insist that your supplier sign a contract offering you protections throughout the lock-in cycle—but be aware that such promises won't always ensure protection.
- Keep your options open via "second sourcing." Establishing at the outset of a purchase a second source of supply to which you can easily switch alleviates the prohibitive costs of having to switch to a whole new technology or architecture down the road. Having a convenient and less expensive alternative also provides another way to gain leverage in negotiation.
- Watch out for "creeping lock-in." Even if lock-in is modest during the sampling phase, it can grow as more equipment is purchased, as more data is stored in certain formats, and as you or your own customers become accustomed to certain types of products or product features. Actively renegotiate at each new round of hardware or software purchases.
- Retain information about usage records. It's a lot harder to switch to a new system or supplier down the road if you don't have access to your own maintenance records and other data.