Vendor Lock-In: Inevitable Reality or An Issue to Tackle?

Vendor lock-in is a significant business risk that affects various industries. In IT, it often occurs when a company becomes overly reliant on a specific software provider, such as for cloud computing or CRM. This reliance can lead to escalating costs, diminished performance, and increased security vulnerabilities over time.

In this post, we will delve into an explanation of vendor lock-in, the common reasons why companies fall into this trap, and provide tips on avoiding it. Additionally, we’ll examine real-life examples of vendor lock-in in the current business landscape.

What Is Vendor Lock In, After All?

Vendor lock-in is a situation where a customer becomes dependent on a vendor’s products or services, making it difficult and costly to switch to another vendor.

There are multiple reasons why vendor lock-in occurs. Here are some of the common ones:

• Proprietary technologies: Vendors use exclusive technologies that are not compatible with other systems, making it difficult to switch.
• Unique data formats: Vendors may gather and store information in unique formats, complicating data transfer to different systems.
• Existing integrations: Systems are deeply integrated with the current vendor, creating challenges for interoperability with new vendors.
• Organizational inflexibility: Resistance to change within the organization can hinder the adoption of new vendors or technologies.
• Skill and knowledge dependencies: Employees develop expertise with the current vendor’s systems, making it challenging to transition to unfamiliar technologies.
• Security and compliance concerns: Ensuring security and compliance with new vendors can be complex and risky, deterring organizations from switching.
• Contractual agreements: Long-term contracts with vendors often include penalties for early termination, discouraging a change.
• High switching costs: The financial and resource costs associated with transitioning to a new vendor can be comparatively high.

Most risks associated with vendor lock in arise when you opt for SaaS solutions. This way you inevitably have dependence on one or another vendor to a certain extent. Now let’s move to exploring ways how to minimize and even completely eliminate the possibility of vendor lock.

Solution To Avoid Vendor Lock In 

Basically, there are two major approaches to address the risks of becoming dependent on a certain provider. Either you develop the required software yourself, or you make a better choice of a vendor. Business owners often pick SaaS to accelerate time-to-market and reduce investment costs. However, vendor lock is exactly the risk of such an approach, especially if you expect to scale the business in the future. So, what should you do instead to avoid supplier lock in. 

Choose Custom Development

The right way to address the issue of vendor lock in, oftentimes, is custom software development. Creating the required solution from scratch completely eliminates dependence on an external provider, are there will be no any. 

Here are a few additional advantages of customer development over SaaS:

• Customization tailored to specific business needs
• Enhanced security measures specific to the organization
• Better integration with existing systems and processes
• No incurring significant fees, only development and maintenance costs
• Improved scalability according to precise business requirements
• Ownership of the software and its intellectual property
• Flexibility to adapt quickly to changing business conditions
• Direct influence over software development timelines and updates

Choose White Label Development

If your primary concern regarding custom development is cost — consider white label development. With white label software, you purchase a ready-made solution that can be customized and rebranded as your own, which is at the same time more affordable than regular development. At the same time, such a solution may not bring any vendor lock in risks.

Not all white-label solutions on the market come without any form of reliance on an external vendor. However, if you are looking for neobanking functionality, there’s a product that exactly fits your needs — Fintech Core by DashDevs.

Fintech Core is a white-label modular fintech solution for the fast creation and launch of digital banking and payments products for mobile or web. With Fintech Core, you start your own neobanking startup or simply acquire banking capabilities for your main product.

Advantages of white label development on the example of Fintech Core:

• Faster time to market due to pre-built and pre-integrated components
• Reduced development expenses
• Focus on branding and marketing
• Access to tested and proven APIs and modules
• Easy scalability for growth and demand
• Quick customization for specific needs
• Opportunity to leverage a white label service provider’s expertise and support
• Absence of vendor lock

Discover more about Fintech Core by DashDevs and why it’s better than Revolut, its close competitor. 

Make a Better Choice Of SaaS Providers

It’s not always possible to address the business needs and concerns with white-label or custom development. After all, there are limitations like budget, time-to-market, industry specificities, and more. So alternatively, you may still partner with a SaaS provider. However, it’s crucial to make the best possible choice from the multiple cloud providers available on the market.

If you want to avoid vendor lock-in, you should consider the following aspects when choosing a SaaS provider:

• Interoperability and open standards
• Contract and Service Level Agreements (SLAs), including exit clauses and service continuity
• Data ownership and access 
• Compatibility and integration
• Data security and compliance
• Pricing models
• Reputation and track record
• Support and customer service

In essence, the optimal solution is white label development, such as with Fintech Core by DashDevs. It doesn’t bear any vendor lock risks and offers an optimal cost-value ratio. 

How to minimize risks of vendor lock-in

Here are some additional pieces of advice that the DashDevs team can suggest you follow. They are helpful if you are already working with a particular provider and need to minimize some risks of vendor lock in cloud computing, like security issues. 

#1 Stand firm with internal backups:

Unlike its offsite counterpart, on-premises backup is always a solution, no matter how redundant it may seem sometimes when you own third-party cloud storage. Such an approach ensures the safety of your data, facilitates quick access, and merely creates a feeling of knowing where all your data is stored.

#2 Adjust for a hybrid-cloud architecture:

Given that sticking with a single option, be it local or cloud backup, often results in unwelcome surprises, experts have come up with a mixed solution. It’s most helpful when you’ve got tons of massive datasets and reap the benefits of software-as-a-service (SaaS) applications. By referring to hybrid cloud computing, you can always restore your database if one of your backup locations is compromised, whether it’s cloud or local storage. Interestingly, the hybrid cloud market grew sufficiently to encompass $85 billion in 2021. As of 2024, 73% of enterprises follow a hybrid cloud strategy.

#3 Stick to the 3-2-1 rule:

It’s a golden mean and one of the most widely employed techniques to ensure the security of your data, maximise its restorability, as well as prevent it from being compromised. Just abide by these 3 principles:

• Make 3 copies of all significant files you want to protect so that you’ll have 2 backups and 1 primary file.
• Store these files on 2 different media types in order to have immunity against a broader spectrum of attacks.
• Keep 1 copy outside your office, home, or on-premise storage.

Consider applying for external assistance should you experience any difficulty with vendor lock-in. Request high-tech consultation with DashDevs. Our experts will gladly help you. 

Vendor Risk Management

Vendor risk management helps businesses ensure data safety when sharing it with third-party vendors and prevents lock-in. Any reputable software development company uses vendor management to protect data. Your risk management strategy should cover how data is shared, accessed, stored, destroyed, and restored. A valuable vendor management solution allows business owners to retain more control over their data and have more vendor options through market research. However, vendor risk management is just the first step toward independence, not the ultimate solution.

How to Develop A Risk Management Program?

The cloud vendor lock in can be partially resolved by outlining a vendor risk management program or plan. Broadly speaking, it should include a variety of offered services, behaviors, and exit conditions. All the essential information about a selected vendor must also be outlined in this document. Conceptually, what vendor lifecycle management encompasses are the following stages of your potential relationship with a third party:

• Coming up with your needs and expectations;
• Letting your risk managers elaborate on a vendor assessment document for you to cherry-pick from (a quick tip — pay attention to vendor license);
• Selecting the most appropriate vendor from the list, researching their offers, and sending out bids;
• Contacting them, stipulating contract terms as well as timeframes;
• Analysing and monitoring activity;
• Closing your relationship with a chosen vendor or renewing it.

While developing a risk management plan, also consider ensuring that:

• Among the vendor list, your preferred choice supports the institution within which you’re operating;
• They work in compliance with all regulations and requirements;
• They agree to initial vendor risk assessment and continual monitoring;
• You can terminate the agreement when something goes wrong from a vendor’s side;
• A preferred vendor has a sufficient number of employees and scale to satisfy your demands;
• Your future vendor isn’t exposed to cybersecurity issues.

Examples of Providers that Can Create Vendor Lock-In If Not Approached Wisely

As mentioned, custom development and white-label development are your best choices when it comes to using software. As real-life experiences show, single vendor lock-in is a common occurrence, especially when it comes to cloud computing services or monopolies for particular products. To prove this point, here are some examples of cloud solution providers that can bring vendor lock issues if not approached wisely: 

Google Cloud

Google Cloud’s extensive ecosystem and integrated services create a scenario of vendor lock-in, where switching providers can be costly and complex. It’s especially true for small to medium sized businesses reliant on free or very affordable cloud services by Google. They may eventually find themselves in difficulty managing and transferring data to a more well-suited environment. 

Despite the potential for lock-in, many businesses find the high-quality services and simplified processes provided by Google Cloud to be beneficial, outweighing the drawbacks of dependency​.

Microsoft Azure

Between 1997 and 2004, the company was blamed for the same vendor lock-in due to a large scale of the Windows APIs so that any other independent software vendor (ISV) couldn’t but employ and embed them. Microsoft Azure offers a wide array of cloud services with deep integrations, leading to vendor lock-in.

Companies heavily invested in Azure services may find it difficult and costly to move to other certain cloud providers, as they would need to adapt their applications to different infrastructures and potentially rewrite large portions of their code​

Apple

The historical example of iTunes demonstrates vendor lock-in within the digital environment. An example is that music purchased could only be played on Apple devices with iTunes installed. That’s a classic example of single vendor lock when a company imposes artificial restrictions on users. 

Today, Apple continues to incorporate similar practices with its App Store, where software and video game developers face restrictions that enforce dependence on Apple’s ecosystem​. 

Salesforce 

Salesforce’s CRM platform is highly customized and integrated with numerous third-party applications. That’s exactly what makes it challenging for customers to transition to other CRM systems. Not to mention that Salesforce is one of the largest such organizations worldwide, holding a monopoly for enterprise-level sales systems. 

Organizations face significant obstacles in migrating their data and workflows out of Salesforce due to the platform’s proprietary nature and extensive customizations​

You may be additionally interested in exploring the top cloud computing trends of 2024. 

Amazon Web Services (AWS)

AWS offers a comprehensive suite of cloud services, including computing power, storage options, and databases, all tightly integrated. This high level of integration and extensive ecosystem of services creates a scenario of vendor lock-in for many businesses.

Migrating applications and data from AWS to another particular cloud provider can incur significant costs and require extensive reengineering. This is particularly challenging for services utilizing AWS-specific APIs and features, such as Amazon S3 for storage, Amazon RDS for databases, and Amazon Lambda for serverless computing

Important nore: The main idea is that using solutions by vendors is always associated with vendor lock-in risks to a certain extent. However, if you opt for the development of custom software, you prevent dependency on an external provider and acquire a solution that’s tailored to your business needs much better. 

Entrust the development of your custom software solution to DashDevs. Reach out to us, and let’s discuss opportunities for your company. 

Final Take

Choosing a SaaS provider to avoid vendor lock-in requires careful consideration of multiple factors. Ensure the provider supports open standards and data portability, offers clear exit clauses in contracts, and allows continuous access to your data. Consider security standards, transparent pricing, the provider’s reputation, scalability, and customer support. Still, your best call is customer software development, as it’s the only option that completely mitigates the probability of supplier lock-in. You may also consider white-label development, which offers the same beneficial outcomes as custom development but at a lower cost. 

Do you have difficulties escaping the supplier lock in? The DashDevs team of experienced fintech engineers can help you address risks and challenges of migration to another software system. With more than 13 years of experience, over 500 IT projects successfully completed, and experience integrating 100+ software vendors, we can handle your issue with flying colors.

Contact us