Why does enterprise software seem to last forever? Why do companies like SAP have high retention but terrible customer satisfaction? Part of the answer is switching costs.

Switching costs come in many forms. Traditionally, economists have thought about switching costs in three broad groups - financial (costs money to purchase new products), procedural (takes time to learn new products), and relational (takes time to build relationships with new companies).

But switching costs are such a driver of software retention that the category deserves analysis. So here are ways that software companies capture value through switching costs.

This list is just the start and nowhere near exhaustive. Switching costs aren't discussed enough. If you have any thoughts or comments, don't hesitate to reply by email or message me on Twitter @mattrickard.


Footnote: I don't recommend most business books since they are usually filled with survivorship bias or littered with useless anecdotes. However, one book that I enjoyed was 7 Powers by Hamilton Helmer. It explores persistent sources of competitive advantage, such as network effects or counter-positioning. One chapter is devoted to switching costs.