Market & Sourcing

Reducing risks from vendor lock-in

by Jeremy Smith

Following the akquisition of VMware by Broadcom, customers were confronted with new pricing and licence models. A quick change of supplier was usually not possible due to vendor lock-in. How can companies arm themselves against price increases from key vendors?

 

"Never change a running system" - this IT principle can lead to serious problems if an organisation becomes dependent on a supplier over the years - known as vendor lock-in. Sometimes, for various reasons, it is not possible to keep the interests of both business partners in balance: For example, if one side is not interested in a sustainable win-win, but only in achieving its financial goals.

In this case, usual price adjustments include new licence or subscription models, changed calculations (computing cores instead of sockets) and reformulated support contracts - mostly for products on which customers are technically dependent and whose replacement would cause enormous costs or business interruptions. It is clear such changes are made in accordance with existing contracts. Nevertheless, many customers are overwhelmed by developments when deadlines are extremely short and corresponding budget items suddenly more than double in the next financial year.

 

Example 1: Kyndryl mainframe

The spin-off of IBM's outsourcing activities to Kyndryl had a significant impact on the mainframe conditions of end customers. As a company outside the IBM Group, Kyndryl lost its favoured "internal" conditions, which in some cases led to massive price increases. Customers with small and medium-sized environments in particular were confronted with a multiplication of their costs. Long-standing existing customers can hardly get away from their mainframe provider, as business-critical applications are usually operated on mainframe environments, the relocation or migration of which can only be realised as part of highly complex and risky projects. The field of mainframe alternatives is also extremely small, meaning options for switching suppliers are limited.

 

Example 2: VMware / Broadcom

The success of server virtualisation is closely linked to VMware products, which have built up a dominant market position over many years. Immediately after the acquisition of VMware by Broadcom in 2023, the licence model was changed. As a result, prices for VMware products increased significantly, especially for small and medium-sized installations. The beneficiaries of the new model are very large IT organisations which use powerful physical servers in combination with the entire VMware product range.

Replacing a server virtualisation solution is extremely complex. Alternative solutions are available both as licensed products (e.g. Nutanix, Microsoft Hyper V) and in the open source environment (XCP-NG, Proxmox). However, such migration projects harbour high risks due to numerous dependencies, require extensive preparatory work and are therefore very expensive - for a project which is only intended to maintain the status quo from the business perspective. Nevertheless, according to our IT Agenda 2025 survey (conducted by Metrics and the Voice IT User Association in autumn 2024), around half of users are considering switching vendors and solutions.

 

Example 3: IBM et al.

Between 2015 and 2025, prices for IBM software rose by almost 80 per cent, according to an IBM partner company. In 2023, prices rose by 24 per cent. In each of the following years, the increase was six per cent. The general inflation rate in Europe over the three years was between a good two and just under six per cent. Microsoft 365 (for private customers) was expanded to include the AI chatbot Copilot in 2025 and became around 30 per cent more expensive as a result. Oracle (Java) and Adobe have also increased their prices.

 

 
How supplier risks in IT can be reduced

These examples show high risk for customers due to the dependence on proprietary technologies. However, there are a few options to mitigate the situation somewhat.

 

Timely POC of alternative solutions

Even if you are satisfied with the product you are currently using, prevention is better than cure. It is therefore advisable to test alternative solutions for their usability in a proof of concept (POC) without time pressure, so in an emergency at least no more time has to be spent selecting a replacement solution. When IT staffing levels are not too low, this also allows the IT team to fulfil its drive for research and innovation. Many manufacturers support POCs by providing a temporary test site free of charge. If the test run is successful, the decision on the actual deployment can be prepared by calculating future costs based on current market data.

Two-vendor strategy

A common approach is to operate two environments on different platforms. This ensures both resources and expertise are available in an emergency and you can focus on technical challenges of a migration. On the other hand, additional costs usually have to be accepted, as the management effort is doubled and not all economies of scale can be realised. Current market data can also be used here when deciding on the best sourcing scenario.

Prioritising open source solutions

As a rule, open source programmes do not offer the same exuberant range of functions, operating convenience and support quality as manufacturer products. However, the economic interests are more manageable. The successful use of such solutions is closely linked to the expertise and willingness of IT experts to contribute to the relevant community.

Outsourcing IT to the cloud

At first glance, this step appears to be the way out, as cloud services are generally available immediately and without restrictions. If appropriate security and access authorisation concepts are already in place, migration to the cloud can take place directly (see diagram above). However, this is where the next dependency lurks - this time on the cloud provider, as the way back from the cloud is costly and time-consuming. Comparative calculations on sensible use of cloud services and well-founded data from previous projects provide support here.

 

Bottom line

The strategic acquisition of a broad IT portfolio and 'milking' existing customers is nothing new. For example, Computer Associates (CA) acquired a substantial portfolio over 20 years ago and converted it into cash. In 2018, the circle closed when Broadcom, the semiconductor manufacturer, took over CA — and with it, a new business model. IT organisations should therefore be prepared for similar developments in the IT market. One thing is certain: although vendor lock-in is understandable, organisations can procure a second key in good time for emergencies. The emphasis is on 'in good time', no matter what measures they take to counteract it.

 

Jeremy Smith

Jeremy Smith

Jeremy is responsible for UK, Benelux & Northern Europe and has been in the IT benchmarking arena for over 25 years. He previously received bench­marking exercises as an end user and delivered benchmarking exercises as a project manager.

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