In the past, companies spent upfront capital to acquire physical premises and hardware to start or grow their business. With cloud services, companies are leveraging the operational expenditure model in the form of “Pay as you go”.
Let’s review the CapEx vs. OpEx models:
Capital Expenditure (CapEx):
CapEx is upfront spending of capital to procure physical premises, hardware and other equipment and allows companies to deduct this expense from their tax bill over time. CapEx costs include:
This includes hardware components and the cost of supporting them. When you purchase servers, you need to think about fault tolerant design for high availability. You will require redundant power supplies and uninterrupted power supplies.
This includes all the storage components and costs to support them. Companies are adopting tiered storage model. You can buy expensive fault tolerant storage for your mission critical applications and less expensive storage for low priority data.
This includes all of your on-premises networking equipment like cabling, switches, access points, routers, wide area networks (WAN) and internet costs.
Disaster Recovery costs:
Companies need protection against disasters that can take down the primary datacenter. Setting up a secondary datacenters is critical for most large enterprises. Setting up a secondary datacenter requires significant upfront investments.
This is cost associated with backing up your data which requires additional hardware.
Datacenter & Technical Personnel
There are costs associated with buying physical floor space, cooling, electricity along with technical personnel to maintain the datacenter operations.
Operational Expenditure (OpEx):
OpEx is spending money on services that you are consuming right now. You can deduct operational expenses from your tax bill in the same year.
With cloud computing, the service providers (like Microsoft, Amazon, Google) incur the cost of buying hardware and equipment. They providing computing services to the end customer.
Some of the operational expenditure costs include:
Leasing Infrastructure Services
With cloud computing, you “rent” virtual servers for specific period of time. The service provider will charge based on the number of hours that you utilize the servers.
Other infrastructure components are offered in a similar pay-as-you-go pricing model. For example, you will be charged for storage based on the tier (hot, cool, cold, etc.) that you use and the amount of data (in GB’s) that you store. Network traffic, load balancers, disaster recovery, backup and many other services are offered which have their own billing meters.
OpEx model is really appealing if the demand fluctuates or is unknown. For example, if your service peaks one month, you can scale to demand and pay a larger bill for the month. If the following month the demand drops, you can reduce the used resources and be charged less. This agility lets you manage your costs dynamically, optimizing spending as requirements change.
Benefits of CapEx & OpEx models:
With capital expenditures (CapEx), you plan your expenses at the start of a project or budget period. Your costs are fixed, meaning you know exactly how much is being spent. This is appealing when you need to predict the expenses before a project starts due to a limited budget.
With the OpEx model, companies can preserve their capital and pay for what they use. This provides the agility to try new ideas or enter new markets quickly without having to make significant upfront investments.
Some tweets on this topic:
Opex vs Capex – what’s the difference? https://t.co/YwOsuivyPz
— Gillian Loft (Reid) (@greid_gillian) April 18, 2019
Actually your #opex optimization can reduce with going #multicloud – #cloud enhances #opex vs #capex, but your opex becomes less efficient in #multicloud intentional applications. #IDGTechTalk https://t.co/g9qfxWzBPP
— Wayne Anderson (@DigitalSecArch) April 11, 2019