Switching costs refer to the costs in time, effort, or money that arise when you switch from using one product to another incompatible product. When switching costs are high, it tends to create customer lock-in because the customer has more of an incentive to stick with the same supplier throughout their life cycle.

Switching costs are related to the defensibility of a business, and also have a lot to do with product compatibility. Companies with high defensibility can usually afford to make their products incompatible with competitors, introducing steep switching costs.

Think of Apple. Buying an Apple product such as a MacBook introduces a whole host of switching costs for incompatible products. If you buy a MacBook, it's costly to own an Android from an effort perspective because you can't sync your phone to your computer as easily, you have to use a different calendar application, etc. And when you buy a song or a movie or a book on iTunes, there are high switching costs to then using Spotify or Hulu or Kindle because the libraries are not compatible and your media will be scattered across incompatible services.

All of this creates a lock-in effect for Apple customers, who have to buy everything from Airpods to Apple TVs in order to keep their electronic devices inter-compatible.

Network effects heighten switching costs like these even further. Not only is it costly from a compatibility perspective to switch products, but when the product has network effects, switching costs are heightened on a group as well as an individual level. For example, on a 2-Sided Marketplace like Craigslist, there are high switching costs for apartment renters as a group, because unless apartment seekers all move to a new marketplace at the same time as the renters, it'll be too prohibitively costly for the renters to leave. Therefore the two sides of the marketplace lock each other into place.