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 that create barriers to market entry may result in antitrust action against a monopoly.

Marketing
Key concepts
Promotional content
Promotional media
Research

Examples

Microsoft
Main article: Criticism of Microsoft § Vendor lock-in

The European Commission, in its March 24, 2004 decision on Microsoft's business practices,[1] 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: "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 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. The Windows franchise is fueled by application development which is focused on our core APIs".

Microsoft's application software also exhibits lock-in through the use of proprietary file formats. Microsoft Outlook uses a proprietary, publicly undocumented datastore format. 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.[2]

Apple Inc.
Main article: Criticism of Apple Inc. § Accusations of anti-competitive behavior

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,[3] 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.[4] 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.[5]

On June 7, 2006, the Norwegian Consumer Council stated that Apple's iTunes Music Store violates Norwegian law. The contract conditions were vague and "clearly unbalanced to disfavor the customer".[6] The retroactive changes to the DRM conditions and the incompatibility with other music players are the major points of concern. In an earlier letter to Apple, consumer ombudsman Bjørn Erik Thon complained that iTunes' DRM mechanism was a lock-in to Apple's music players, and argued that this was a conflict with consumer rights that he doubted would be defendable by Norwegian copyright law.[7]

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.[8] 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 MP 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.[9]

Google

Although Google has stated its position in favor of interoperability,[10] the company has taken steps away from open protocols replacing open standard Google Talk by proprietary protocol Google Hangouts.[11][12] Also, Google's Data Liberation Front has been inactive on Twitter since 2013[13] and its official website www.dataliberation.org now redirects to a page on Google's FAQs, leading users to believe the project has been closed.[14][15] Google's mobile operating system Android is open source, however the operating system that comes with the phones that most people actually purchase in a store is more often than not shipped with many of Google's proprietary applications that promote users to use only Google services.

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 further, 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.[16]
  • Test strips for glucose meters are typically made for a specific make or model. 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. Some companies, despite claiming to have lifetime warranty on their products, stop making specific models and their respective strips so that even those who have a good functioning model, have to buy a new model.[17]
  • 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.[18] Other single-serving coffee brands, such as Nespresso, also have proprietary systems.
  • Lens mounts of competing camera manufacturers are almost always incompatible. Therefore, a photographer with a set of lens mounts of a certain manufacturer will prefer not to buy a camera from another manufacturer.
  • Nvidia, as of 2018, still only supports a proprietary Nvidia G-Sync despite the availability of the open Video Electronics Standards Association (VESA) standard Adaptive Sync technology (FreeSync). In January 2019, Nvidia announced that it will advance compatibility of its video cards with FreeSync-compatible monitors.[19]
  • Some cordless tool manufacturers make batteries that fit only their own brand of tools, and often are not backwards compatible. Often multiple brands are owned by the same company, and share tool designs and features, accessories and batteries are deliberately changed to make them incompatible. An example would be Stanley Black & Decker who also owns or manufactures Black & Decker, DeWalt, Porter Cable, Mastercraft, and Craftsman. All use almost identical batteries, yet all have some feature designed to stop use in other tools.
  • Dell laptops will 'throttle', or limit the processing speed available to the end-user, if genuine Dell OEM power supplies are not used with their devices. ('Error message - The AC adapter type cannot be determined. This will prevent optimal system performance.')[20]

Variations
MonopolisticCollectivePopular term
NoNoN/A
YesTechnology lock-in
YesNoVendor lock-in
Yes
Monopolistic
Whether a single vendor controls the market for the method or technology being locked in to. Distinguishes between being locked to the mere technology, or specifically the vendor of it.

This class of lock-in is potentially technologically hard to overcome if the monopoly is held up by barriers to market that are nontrivial to circumvent, such as patents, secrecy, cryptography or other technical hindrances.

Collective
Whether individuals are locked in collectively, in part through each other. Economically, there is a cost to resist the locally dominant choice, as if by friction between individuals. In a mathematical model of differential equations, disregarding discreteness of individuals, this is a distributed parameter system in market share, applicable for modeling by partial differential equations, for example the heat equation.

This class of lock-in is potentially inescapable to rational individuals not otherwise motivated, by creating a prisoner's dilemma — if the cost to resist is greater than the cost of joining, then the locally optimal choice is to join – a barrier that takes cooperation to overcome. The distributive property (cost to resist the locally dominant choice) alone is not a network effect, for lack of any positive feedback, however the addition of bistability per individual, such as by a switching cost, qualifies as a network effect, by distributing this instability to the collective as a whole.

Technology lock-in

As defined by The Independent, this is a non-monopoly (mere technology), collective (on a society level) kind of lock-in:[21]

Technological lock-in is the idea that the more a society adopts a certain technology, the more unlikely users are to switch.

Examples:

Personal technology lock-in

Technology lock-in, as defined, is strictly of the collective kind. However, the personal variant is also a possible permutation of the variations shown in the table, but with no monopoly and no collectivity, would be expected to be the weakest lock-in. Equivalent personal examples:

  • A person who has become proficient on QWERTY keyboards will have an incentive to continue using QWERTY keyboards.
  • A car owner has an incentive to make use of their car, because using it is cheap compared to the total cost of car ownership; the car is said to be a sunk cost.
  • A person who has ripped their CD collection to MP3 will have an incentive to prefer audio equipment that supports this format; and vice versa, for personal investment reasons, has an incentive to continue ripping to this format.
  • A person who has most of their multimedia equipment interconnected with HDMI will tend to seek HDMI compatibility to all their other multimedia-capable equipment (although this is a far less severe case of lock-in than those above, due to the wide availability of adapters that can be used to connect HDMI equipment to/from—for instance—DVI or DisplayPort equipment).

Collective vendor lock-in

There exist lock-in situations that are both monopolistic and collective. Having the worst of two worlds, these can be very hard to escape — in many examples, the cost to resist incurs some level of isolation from the (dominating technology in) society, which can be socially costly, yet direct competition with the dominant vendor is hindered by compatibility.

As one blogger expressed:[23]

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

While MP3 is now patent-free, in 2001 it was both patented and entrenched, as noted by Richard Stallman in that year (in justifying a lax license for Ogg Vorbis):[24]

there is […] the danger that people will settle on MP3 format even though it is patented, and we won't be *allowed* to write free encoders for the most popular format. […] Ordinarily, if someone decides not to use a copylefted program because the license doesn't please him, that's his loss not ours. But if he rejects the Ogg/Vorbis code because of the license, and uses MP3 instead, then the problem rebounds on us—because his continued use of MP3 may help MP3 to become and stay entrenched.

More examples:

  • Proprietary file formats that have become widespread on the web: examples include GIF (patent expired), Adobe Flash and H.264.
  • Communication services that require membership with the same vendor as the communication partner: Unlike telephone service providers or email service providers, which enable communication with competing providers' users, services like Skype and Facebook are effectively single-vendor communication protocols. Facebook is said to have achieved technological lock-in, in terms of its self-reinforcing presence on a society level.[21] However, if the lock-in is to Facebook specifically, not social media in general, then it is fair to promote this title to collective vendor lock-in.

See also

Notes
  1. "Commission Decision of 24.03.2004 relating to a proceeding under Article 82 of the EC Treaty (Case COMP/C-3/37.792 Microsoft)" (PDF). European Commission. 2019-02-06. Retrieved 2009-06-17.
  2. "Microsoft Office Binary (doc, xls, ppt) File Formats". 2008-02-15. Archived from the original on 2009-03-08. Retrieved 2009-06-17.
  3. Sharpe, Nicola F.; Arewa, Olufunmilayo B. (Spring 2007). "Is Apple Playing Fair? Navigating the iPod FairPlay DRM Controversy". Northwestern Journal of Technology and Intellectual Property. Northwestern University. 5 (2). Retrieved 2009-06-17.
  4. "Itunes user sues Apple over iPod". BBC. 2005-01-06. Retrieved 2009-06-17.
  5. Higgins, Donna (2005-09-22). "Antitrust Suit Against Apple Over iPod, iTunes to Proceed". FindLaw Legal News. Retrieved 2009-06-17.
  6. "iTunes violates Norwegian law". Norwegian Consumer Ombudsman. 2006-06-07. Archived from the original on 2006-06-25. Retrieved 2006-06-08.
  7. Thon, Bjørn Erik (2006-05-30). "iTunes' terms of service vs Norwegian marketing law §9a" (PDF). Archived from the original (PDF) on March 4, 2016. Retrieved 2015-05-02. English transcribed: The Consumer Council reacts to the observation that iTunes' DRM entails that the files can only be played on a few players, mainly Apple's own players. They furthermore believe that the terms of service's point 9b, where the customer among other things must agree not to circumvent or change such technical hindrances, is in conflict with the copyright law §53a(3). […] Copyright holders are by the copyright law entitled to decide if the work is to be made available, and in principle also how it is made available. […] Copyright can in my opinion not give the copyright holder right to demand all kinds of conditions when sold to consumers in generality. Norwegian original: Forbrukerrådet reagerer på at iTunes Music Stores DRM medfører at filene kun kan spilles på et fåtall spillere, hovedsakelig Apples egne spillere. De mener videre at tjenestevilkårenes punkt 9b, hvor kunden blant annet må samtykke til ikke å omgå eller endre slike tekniske sperrer, er i strid med åndsverksloven §53a(3). […] Rettighetshaverens enerett etter åndsverksloven gir anledning til å bestemme om verket skal gjøres tilgjengelig, og rettighetshaveren kan også i utgangspunktet bestemme måten dette skal skje på. […] Opphavsretten kan etter min mening ikke gi rettighetshaveren rett til å stille enhver form for betingelser ved salg til forbrukere i alminnelighet.
  8. "Apple Launches iTunes Plus". Apple Inc. 2007-05-30. Retrieved 2007-05-30.
  9. "Changes Coming to the iTunes Store". Apple Inc. 2009-01-06. Retrieved 2011-08-30.
  10. "Open Communications - Google Talk for Developers". Google. 2013-05-15. Retrieved 2015-05-04.
  11. "Google Abandons Open Standards for Instant Messaging". EFF. 2013-05-22. Retrieved 2015-05-04.
  12. "You Have No Choice: Google To Shutdown GTalk Feb. 23, Hello Hangouts". TechTimes. 2015-02-17. Retrieved 2015-05-04.
  13. "dataliberation (@dataliberation) on Twitter". 2013-04-24. Retrieved 2015-05-04.
  14. "Vincent Toubiana (@vtoubiana) on Twitter". 2014-02-10. Retrieved 2015-05-04.
  15. "Rob Dolin(@robdolin) on Twitter". 2014-07-29. Retrieved 2015-05-04.
  16. McCullagh, Declan (2003-01-08). "Lexmark invokes DMCA in toner suit". CNET. CNET. Retrieved 2013-07-07.
  17. Babaria, Palav; O'Riordan, Aisling (2013-11-14). "A Haitian Boy's Needless Death From Diabetes". New York Times. Retrieved 2014-07-17.
  18. "The K-Cup Patent Is Dead, Long Live The K-Cup". Wall Street Journal. Retrieved 2014-03-08.
  19. Kerns, Michael. "The (Unproductive) Battle of FreeSync and G-Sync". Gammer's Nexus.
  20. "How to Troubleshoot AC Adapter Issues | Dell US". www.dell.com. Retrieved 2020-07-20.
  21. "Facebook may "lock in" its internet dominance". The Independent. 2010-01-27. Retrieved 2015-05-05.
  22. "Can I convert my MP3 collection to the Ogg Vorbis format?". Vorbis.com: FAQ. Xiph.Org. 2003-10-03. Retrieved 2012-08-26.
  23. "Top 10 reasons I hate Skype". dgeex.de. 2015-04-04. Retrieved 2015-04-26.

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. 33: 1–26. doi:10.1086/467198.
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