Lock-in

Switching costs are the costs incurred from changing from one brand to another. Tangible switching costs are things like laying a new telephone line. Intangible costs are things like the cost of switching to a new telephone number.

Vendor lock-in is when a customer prefers a different product than the one he uses, but not enough to pay the switching costs. Many vendors of high tech products work to increase their own lock-in and decrease the lock-in of their competitors. In some cases, for example computer hardware, switching costs tend to decrease with time.

Brand specific training for users of computer software is a lock-in that tends to increase with time. Users do not like changing from software they are familiar with, and the longer they use the software, and more proficient they become, the less willing they are to change. With enterprise software, the cost and risk of switching from one product to another is a powerful force maintaining the status quo.

Lock-in is the key issue in software marketing. The usual marketing ideas that apply to selling high margin consumer goods like fresh fish simply do not apply. In fact the normal rules our supply and demand are so skewed in the IT market that they are almost impossible to recognize.

Competing commodity software packages immediately become freeware. The reason is that the high initial cost of creating software combined with the low marginal costs per customer encourages vendors to increase market share by price cutting. If there is no brake, the market ends up spiralling down to freeware. If a new standard is introduced into the market, and it succeeds in becoming a real standard, your package may become a commodity and you may find yourself having to give it away.

But by locking customers into a solution, software vendors can reap sizeable profits even if their products are more or less the same as the competition. The reason is that the switching cost, and not the license fees for the software itself –- which tend to be a small part of the total cost of ownership -– is what is keeping the customer paying.

Alea developers move to Jedox

Interesting story behind Jedox hiring the remaining Alea developers from Prague. As far as I know there are three left, but once there were thirty. The MIS hotheadedly fired most of them after the disastrous Alea 4.0 project back in 2001 (or maybe 2002, I have forgotten).

Alea was a clone of TM1 developed by MIS GmbH from scratch in Prague back in the mid 90s. After squandering its IPO money, MIS ended up as part of Infor. Comshare was there too, and the two product lines started to compete internally and merge. In my opinion MIS had better technology than Comshare, but I am not a neutral observer.

One upshot of all this is Alea was renamed Infor OLAP and development was moved to Ann Arbor. My guess is that this is one reason why Matthias Krämer went to Jedox, though I haven't asked him. He won't need to take much time to get to know the products.

The MIS front-end tools are still being developed in Prague. The Web application development tool was originally created by Intellicube, which Christian Raue (founder of Jedox) sold to MIS. The development team was partly made up of redundant Alea developers. I was later product manager for that product, now known as Application Studio. Unsurprisingly, the Jedox front-end tools are very similar to Application Studio.