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Switching costs

Concept · Strategy

Switching costs

Why the difficulty of leaving can be more valuable than the appeal of joining.

Harder to leave. Stronger to keep.

On May 6, 2013, at its MAX conference in Los Angeles, Adobe told its customers there would be no Creative Suite 7. Photoshop, Illustrator and InDesign would from then on arrive through Creative Cloud, a monthly subscription, and owners of Creative Suite 3 or later were offered $29.95 a month for a limited time to cross over. Scott Morris, who ran the Creative Cloud and Creative Suite team, acknowledged the risk. Eighteen months later, at the end of fiscal 2014, Adobe had 3.454 million paid Creative Cloud subscriptions, up 140% in a year, and $1.68 billion in Creative recurring revenue, more than double the $801 million it began the year with.

In one sentence

Switching costs are the money, time, effort, risk or value a customer expects to lose when changing providers; they can preserve revenue while weakening the customer's choice.

Adobe’s filing states the plan plainly: migrate existing users off perpetual licenses and give them cloud features, such as Creative Cloud Libraries, that boxed software could not offer. What it does not report is why any one subscriber renewed, out of enthusiasm or out of the cost of rebuilding a workflow. The difference is the subject of this article.

Switching costs are what a customer gives up, pays or risks by moving from one supplier to another: a termination fee, a week of migration, an archive that will not open elsewhere, a team that would have to move together, or plain unfamiliarity. The concept concerns the customer’s transition, not the product’s quality. A customer can prefer a rival’s offer and still stay because moving is costly, and an excellent product can carry low switching costs if data exports cleanly and both services can run side by side. Switching costs arise after the sale, which is why they are so valuable. Before buying, the customer can compare every option. Afterwards the incumbent is the only option that costs nothing extra, and the buyer’s bargaining position weakens by the price of leaving.

Salesforce shows why the measure needs care. It ended fiscal 2025 with $63.4 billion of contracted revenue not yet recognized and an annual attrition rate of about 8%, measured on the annualized value of contracts. That rate describes contract value lost, not the lifespan of an individual customer or why customers renew; expansions and contractions also affect the relationship between revenue attrition and customer churn.

Forms of switching costs

Switching costs show up in different forms. They’re often a combination of several.

Financial

Loss of money or value

01
Loss of money or value
Technical

Time, effort, or complex migration

02
Data

Your data is stuck or costly to move

03
Social

You’d leave your network behind

04
Psychological

Familiarity and habit

05

A continuum, not a switch

Switching costs exist on a spectrum. They can make revenue more durable while also weakening customer choice; the same friction can create resentment, invite workarounds and draw regulatory attention.

LowEasy to switchHighHard to switch
“Why leaving is hard.”
— Execemy

Why it matters

Switching costs can make a sale into a longer-lived cash flow. The cost of winning a customer is paid once and revenue may arrive for years, which is why Adobe reports recurring revenue and Salesforce reports attrition alongside sales. A supplier that expects to keep customers can spend on product, support and migration tools, though retention itself does not show whether customers stay for value or friction.

The cost of leaving comes in two kinds, and they age differently. One kind grows because the customer keeps investing: a library of purchases, a decade of files, a team’s habits. The other is built by the supplier: fees, cancellation mazes, formats nobody else reads. Apple’s 2013 debate over iMessage on Android shows how openly the second kind can be discussed inside a company, and Adobe’s 2026 settlement shows what it can cost when it reaches a regulator.

Compare two companies holding the same asset, a customer’s accumulated purchases. Apple’s internal emails treat the difficulty of leaving as something to protect: Phil Schiller wrote that moving iMessage to Android would hurt Apple more than help it. Nintendo treats the customer’s library as something to carry forward, so upgrading to new hardware costs less than starting again elsewhere. Both raise the price of leaving. Only one does it by making staying cheaper.

The practical test is to price the exit as the customer would. What must be exported, rebuilt and retrained, who does the work, and how long both systems run in parallel? If a company cannot answer, it does not know whether customers are staying because the product is good or because leaving is hard.

Real-world examples

The same concept shows up in different ways across industries.

AdobeFile formats + team workflows
→

In May 2013 Adobe stopped developing Creative Suite and made Creative Cloud the way to get new versions of its flagship applications. By November…

AppleHardware + services
→

Internal Apple emails later entered in Epic v. Apple indicate that executives viewed iMessage availability on Android as reducing the switching barrier for iPhone families. In 2016, Phil Schiller opposed moving iMessage to Android, and Apple never shipped it.

SalesforceData + workflow
→

Salesforce reported $63.4 billion of remaining performance obligation, up 11%, at the end of fiscal 2025, and an attrition rate of about 8% excluding…

NintendoInstalled library + ecosystem
→

Switch 2 launched on June 5, 2025, and Nintendo sold more than 3.5 million units in four days, its best first four days for…

When it breaks

Friction that customers did not choose invites a regulator. In March 2026 the government announced a proposed order: $75 million in civil penalties, $75 million in free services, and a requirement to disclose the fee and provide easy cancellation. Adobe said it disagreed with the government’s claims. The software was not the problem. The cost of leaving was.

Exit fees can be legislated away. Cloud providers had long charged to move data out. The EU Data Act entered into force in January 2024 and began applying on September 12, 2025. Its cloud-switching rules allow cost-based switching and egress charges during a transition period, then require their removal from January 12, 2027.

A retention rate cannot separate loyalty from confinement. Salesforce’s 8% attrition looks the same whether customers are delighted or stuck, and the difference only appears when a rival makes leaving cheap.

Key takeaways

  1. 01

    If a customer left today, what data, workflow, learning or value would they have to move or rebuild, who would do the work, and how long would it take?

  2. 02

    Does retention reflect product value or exit friction? Compare renewal and use with a credible, lower-friction path to switch; distinguish customer-built investments from obstacles the supplier imposed.

  3. 03

    Can customers export their history and use it elsewhere? What valuable service remains when their data and relationships are portable?

Explore switching costs in the strategy map →

Related concepts

See all →
Platform lock-inControl the ecosystem.Network effectsValue increases as more people join.

Sources

  1. Adobe Goes All-In With Subscription-Based Creative Cloud, Will Still Sell CS6 For Now But Will Stop Developing It · TechCrunch, 2013-05-06. Announcement at Adobe MAX; no new Creative Suite versions; $29.95 a month offer for CS3 and later owners; Scott Morris on the risk
  2. Adobe Systems Incorporated 2014 Form 10-K · Adobe Investor Relations, 2014-12-19. Item 7; 3.454 million paid Creative Cloud subscriptions versus 1.439 million, 140% growth, $1.68 billion Creative ARR versus $801 million, migration strategy and Creative Cloud Libraries
  3. Adobe used hidden fee to trap people into paying for subscription plans, FTC says · Federal Trade Commission, Consumer Advice, 2024-06-17. Allegations on the annual paid monthly plan, hidden early termination fee and cancellation hurdles; complaint filed June 17, 2024
  4. Adobe Agrees to $150 Million Settlement and Injunction to Resolve Alleged Violations of the Restore Online Shoppers’ Confidence Act · U.S. Department of Justice, 2026-03-13. Proposed stipulated order: $75 million civil penalties, $75 million in free services, early termination fee disclosure and easy cancellation
  5. Adobe to pay $75 million to settle US subscription terms lawsuit · CG Channel, 2026-03. Adobe’s statement that it disagreed with the government’s claims
  6. Apple v. Epic Court Documents Reveal Rationale for Not Bringing iMessage to Android · MacRumors, 2021-04-09. Epic’s filing quoting Federighi (PX407) and Schiller (PX416)
  7. Salesforce, Inc. FY2025 Annual Report · U.S. Securities and Exchange Commission, 2025-04-25. FY25 highlights: $63.4 billion remaining performance obligation, 90%+ of the Fortune 500, 19 million Trailblazers, Data Cloud
  8. Salesforce, Inc. Form 10-K for fiscal year ended January 31, 2025 · U.S. Securities and Exchange Commission, 2025-03-05. Item 7; attrition definition and rate of approximately eight percent, excluding Slack self-service
  9. Nintendo Co., Ltd. Annual Report 2025 · Nintendo Investor Relations, 2025-06. Nintendo Account as the connection point spanning platform generations; Switch 2 launch on June 5, 2025
  10. Nintendo Switch 2 Sells Over 3.5 Million Units Worldwide in First Four Days · Nintendo, 2025-06-11. 3.5 million units in four days; highest for any Nintendo hardware
  11. Transfer Guide: Moving to Nintendo Switch 2 · Nintendo of America, 2025. System Transfer of purchased digital games and save data; compatible Switch games play on Switch 2
  12. Cloud switching just got easier: Removing data transfer fees when moving off Google Cloud · Google Cloud Blog, 2024-01-12. Free network data transfer for customers migrating off Google Cloud
  13. Google Cloud eliminates ‘exit fees’ for departing customers · Nextgov/FCW, 2024-01-11. EU Data Act taking effect; FTC cloud comments on egress fees; UK CMA cloud probe; scope of Google’s waiver
  14. Free data transfer out to internet when moving out of AWS · AWS News Blog, 2024-03-05. Waiver of data-transfer-out charges for customers leaving AWS; reference to the European Data Act
  15. Data Act explained · European Commission, Shaping Europe’s digital future, 2025-09-12. The Act applies from September 12, 2025; Chapter VI on cloud and edge switching; transitional period for cost-based charges; switching and egress charges must be removed from January 12, 2027