Vendor Lock-In: Minimizing Impact

Building off of a previous post on only writing code which relates to your business, following this model, you will inevitably need to choose vendors to help out with your technical operations which will have proprietary ways of doing business. Some of them may be the best at what they do, and likely the logical choice. The question is: what is a comfortable level of custom setup and coding needed to work with vendors?

When choosing vendors to perform part of your technical operations, weigh the costs and benefits of custom setup and coding so you understand the costs of needing to change that vendor in the future.

Market Maturity

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Try and understand where the market is you are entering into: are there a few small contenders in an emerging market or are there many major players? Which of these have the largest base of customers? How long have they been on the market? Are they going to be bought out? When going into business with someone its important to understand all of the players and where they stand.

Software vendors you are considering have come into the market at different points. Depending on how mature the market was when they entered, they could have been pioneers in their field. Being a pioneer meant they set their own standards about how they work which may be quite different from how others in the space work. While this might have gotten them a major market share to begin with, they may have non-standard ways of doing business compared to their competition.

Can You Really Escape?

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At the end of the day, most vendors will make it less than ideal to switch as they will want to make it difficult for you to leave. The level of this pain varies between software companies depending on their business strategies. While some require you to write code to integrate with them, others will merely plug into your existing applications and be easier to change out.

Another factor to consider is open source software. While it is your choice to use the software, you are likely subject to the GPL rules of using the software. There are few barriers to entry except setup on the plus side and adhering to the licensing.

Best Practices for Vendor Analysis

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Here are some guidelines to follow when considering your next 3rd party software vendor. The goal here is to minimize any vendor of getting too much of a foothold into your business where it might be difficult to change them in the future.

• What are the industry standard practices for the type of software you are considering?

• Does the vendor you are choosing follow these standards?

• Which vendors are the most and least restrictive?

• What are the open source alternatives?

• What is the cost of setup and maintenance?

• What is the termination cost?

• What would be the extent of changes need if you need to switch vendors?

Do the Math

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Before signing any contracts or commitments with vendors, do the math to understand what it would take from a time and monetary impact to change them out. Agree with your peers to this risk and understand what the potential costs might be. Ensure this is documented for others to see in the future so they are sure you understood and made an informed decision about all of the risks and costs involved. Some considerations:

• Open source is a double edged sword. While it may be wonderful to have a zero cost to entry which will make accountants happy, consider the cost of setup and maintenance when if the open source technology you chose does not have a paid support plan, only a forum to ask questions.

• What is the setup / termination cost for each paid vendor? This should usually be outlined in each contact.

• Is the vendor required to provide you with your information at the end of the contract? If not factor in the cost of getting your data out of their systems (if applicable).

• Cost to switch vendors? Estimate in the future: list the costs would be to change vendors. Writing down you are aware of these costs if the company wants to change vendors in the future means at least you documented you were aware.

• How many setup hours? What would the people hours required to setup your company to use this vendor? Would there be extended setup / coding time needed to fully integrate and use this company?

• Future growth cost? Based on the forecasts and needs of your company going forward with growth, what is your expected expenditure? Does that align with what your expected costs would be in the future?

Running through this analysis should make you confident of your decision. More importantly it documents for future people why the decision was made.