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Embracing cloud technologies is a smart decision that brings flexibility and operational efficiency to companies, although it is not without its perils, as is the case with vendor lock-in. Different types of vendor lock-in force companies to work out strategies to move forward, starting with evaluating the vendors’ extent of dependence.
With the proliferation of cloud services, these kidnappings have become an important factor to take into account when establishing partnerships. In addition, it must be understood that vendor lock-in does not always work the same way nor does it affect the same layers of the technological architecture. We could distinguish between 4 main types of supplier dependence, that are not mutually exclusive and can often coexist to varying degrees in the same company.
- Vertical. Vertical vendor lock-in occurs when the lock-in affects the entire solution offered by the vendor, from infrastructure to applications to data. In this scenario, the enterprise finds itself completely dependent on the vendor, as its solution is designed to work together and is not easily interoperable with other systems. As a result, the enterprise is constrained in its ability to migrate its applications and data without having to make significant changes. Imagine, for example, a company using a cloud-based productivity suite provided by a SaaS provider, where employees create and store documents, collaborate on projects and manage their tasks. The company may decide to switch to another productivity suite from another provider, but will face compatibility and data migration issues, as the new solution may have different file formats or lack specific functionalities. In addition, the new vendor’s infrastructure and services may not be compatible with the existing setup, which would require a heavy investment of time and resources to make the transition.
- Horizontal. Unlike vertical vendor lock-in, where the vendor provides an end-to-end solution from infrastructure to applications and data, horizontal vendor lock-in focuses on a specific area, such as enterprise software. For instance, the vendor provides a customer relationship management (CRM) system, a human resource management system, a financial management system and other key components for the operation of the business. The company is in a situation where it has invested significantly in the personalization and configuration of these vendor-provided systems. Dependency on the vendor is established due to several factors, such as deep integration of vendor systems, business-specific customizations, and employee training in the use of those particular solutions. As a result, switching to another vendor or platform would require a substantial investment of time, resources and effort to migrate data, adapt procedures and retrain employees in the use of the new solutions. It is important to note that horizontal vendor lock-in can coexist with other types of vendor lock-in. A company can be locked into a specific vendor both horizontally, depending, as in the example above, on its enterprise software solutions, and vertically, depending on the infrastructure and technology platform provided by the same vendor.
- Diagonal. This type of kidnapping has profound implications for the entire enterprise infrastructure, as it occurs when a company is linked to multiple suppliers in different layers or areas of its technological framework. In this case, the vendors are interconnected and dependent on each other. Switching from one of the vendors can have an impact on other interrelated suppliers and systems, making the transition difficult. An example might be a company that uses CRM and a web hosting service provider that is tightly integrated with the CRM software. If the company decides to change the CRM vendor, it would also have to consider how it would affect the web hosting infrastructure and other related systems.
- Generational. Often it is said that this type of vendor lock-in is “unavoidable”, as it is assumed to be due to the natural evolution of technologies. This type of lock-in refers to incompatibilities that arise when the tools used do not comply with current standards. When a company has invested in a very specific technological infrastructure, such as hardware, software or operating systems, and has adapted to it over time, it can become locked into that technology. This includes customizations, integrations with other systems, and reliance on features or functionality unique to that particular technology. By using outdated or vendor-agnostic solutions, the company risks becoming locked in due to the lack of modern or compatible options in the marketplace. However, this class is not so much vendor-focused as it is technology-focused, so it could affect one or more of them.
Vendor lock-in is a phenomenon that can affect business operations in many ways; it is practically an all-encompassing umbrella term for a variety of issues, all related to dependencies on technologies and infrastructures that prevent companies from moving forward and taking advantage of new opportunities. Identifying and addressing these dependencies is essential to minimize the associated risks and have greater flexibility in adapting to changing business needs.