Switching Costs

Posted by On September 12, 2010 3 Comments

I wonder if having a high switching cost is the evil twin of the freemium customer acquisition model.  It’s alter ego.  If you can’t get one, you have to have the other.  If you have both, look out…you’ve got iTunes.

Five years ago when I started this blog I went through a short (as in an hour or two) selection process to decide what blogging platform I wanted to use.  I didn’t have an explicit selection criteria, but if you’d have asked me I would have said something like:

  • Easy to set up,
  • Lots of features, and
  • Moderately priced.

I looked around and ultimately decided to use TypePad by Six Apart.  Well, after a couple of years and 150+ blog posts, it became clear I had made the wrong choice.  TypePad just wasn’t going to cut it and I should have picked WordPress.  Over the next couple of years I looked into switching to WordPress but every time I looked into it, the time and other downsides caused me to stay…until last month.

Last month, I said F-it and decided to switch to WordPress no matter what the cost.  After 50+ man hours, calling in lots of favors, losing 1,000+ RSS readers, breaking all the photo links (i.e. no Google image search traffic), being down for 5 days and an amazing frustrating process I got the blog moved over.

The process was so amazingly tedious and unnecessarily complex that it occurred to me that this difficulty, this switching cost, was not accidental, but that it was a conscious part of the respective companies’ business models.  This got me wondering…is this common for many companies?

  • TypePad.  I had to start here, but I promise to be short.  One great example of how TypePad created switching costs is how they deal with photos.  There is no “export” feature for photos and over the last 5 years, TypePad has twice changed how they handle them.  The last change (3 years ago) was to place the image files in a subdirectory named /.a/ followed by a random 20 character alphanumeric file name (without a file type extension like .jpg or .png).  This last one is pretty insidious in that even if you can create a subdirectory /.a/ (which WordPress can’t handle) then you have to go manually through all of the pictures and put on the appropriate file type extension.  The long an short of it is that it takes a bunch of time and tools well explained in this howto.
  • Network Solutions.  Network Solutions is the original registrar that started with a monopoly back in the 1970s and grew to hundreds of millions in revenue.  In the late 1990s their monopoly went away and in came the new players (GoDaddy, eNom, etc.) who where charging a lot less.  Even today Network Solutions charges $39.99 per year to register a domain while GoDaddy and others charge as little as $9.99.  Why?  Switching costs.  The process for switching from one registrar to another is complicated (a minimum of 4 steps) that involves the participation of both the winning and losing registrar.  According to ICANN, the losing registrar can “embargo” the domain for 5-7 days and the customer support folks at Network Solutions said they do this even though they don’t need to.  The bottom line is that switching registrars means you lose your web and email for the entire company for hours or even days.  And for what?  Network Solutions charges $40 per year and you can save $30?

Many “modern” businesses like 37signals and Disqus eschew the high switching cost idea (and in both of those cases provide very usable tools to ensure a low switching cost).  But perhaps that is a reflection of being young and not having strong competitors.  Maybe they’re afraid to be that self-interested. But then, I doubt Network Solutions and Six Apart set apart to lock in their customers using trickery, but the pressure must have been strong from their investors and others…sheer survival was probably at stake.