The price of leaving shapes the price of staying.
The Idea
Switching costs are everything it takes to move from one supplier to another: migration, retraining, integration rework, contract penalties, and risk. When switching costs are high, you’re locked in, and the vendor knows it. Lock-in lets suppliers raise prices without losing customers.
Economist Paul Klemperer set out the dynamics in a 1987 paper on markets with consumer switching costs. He grouped them into learning costs, transaction costs, and costs that firms create deliberately, such as discounts for repeat purchases. His central finding was that suppliers in these markets compete hard for market share early, because once customers are locked in, prices can drift toward what a market with little competition would bear.
In ITAM Terms
Lock-in is rarely a single decision. It accumulates through integrations, customizations, proprietary data formats, trained staff, and multiyear terms. By renewal time, your real negotiating position is set by how credibly you could leave. Klemperer’s pattern also explains why a first contract can look generous: it is often priced to win you, and later ones to keep you.
Where You’ll See It
- Software: ERP and database platforms with years of customization, proprietary file formats and APIs, and audit clauses that give the vendor leverage when you try to reduce spend. The longer a platform runs, the more its customizations become knowledge that exists nowhere else.
- Hardware: Proprietary components, consumables, or management tools that only work with one vendor’s kit. Printers are the familiar version: a modest device price, recovered over time through branded supplies.
- Cloud: Data gravity. Moving petabytes out costs egress fees and time, and workloads built on proprietary managed services don’t port easily. Regulators have started to act on the fees. In 2024, Google Cloud, AWS, and Microsoft each launched programs that waive data transfer charges for customers who leave, though the UK Competition and Markets Authority found that conditions such as a 60-day completion window and exclusions for partial or multicloud moves limit how much they help. In the European Union, the Data Act bars most cloud switching charges, including egress fees, from January 12, 2027.
- AI: Prompts, fine-tuned models, embeddings, and workflows tuned to one provider. Switching models can mean retesting everything. A routing layer that can call more than one model provider, and test suites that record expected behavior, both lower the cost of changing later.
Governance Takeaway
You can’t avoid all lock-in, and some is worth accepting for the value it brings. The point is to choose it knowingly. Assess exit costs at procurement, negotiate data portability and transition assistance into contracts, and favor open standards where the trade-off is reasonable.
Open standards apply to your management data as well as your workloads. Billing data in the FOCUS format uses the same columns and definitions across cloud, SaaS, and AI providers, so changing a provider or a tool means less rework in your cost and usage reporting.
Try This
For one strategic platform, estimate what it would cost and how long it would take to leave. That number is the ceiling on your negotiating leverage today.
