The true costs of CapEx vs OpEx in a cloud environment

Paul Montaigne

 January 17, 2019


For leadership, when it comes to rolling out new technologies on the digital transformation journey, one of the top considerations is capital expenditures (CapEx) versus operational expenditures (OpEx).

Of course, that’s an important consideration, but it’s not the only factor to consider.

The CapEx vs. OpEx debate

If you design, build and deploy your own IT infrastructure, it is considered a longer-term investment and therefore the costs fall under your capital expenses (CapEx). In contrast, opting for cloud model shifts your spending to a pay-as-you-go model, like a utility bill that you pay on a monthly basis, which comes out of your day-to-day operational expenses (OpEx).

For start-ups and growing businesses, the OpEx model can be a big driver of cloud adoption. But even larger and established organizations have now been increasingly leveraging the flexibility and scalability of cloud, which aside from the perceived financial benefits, offers better security, backup and redundancy than they could provide with in-house resources.

All that being said, the CapEx versus OpEx debate isn’t a new one. That conversation is much older than cloud itself, and it’s not as straightforward as it seems. Both models have ‘hidden’ costs that need to be considered.

Which option is best?

With an on-premises solution, you’re required to pay up-front capital costs, but it also allows for amortization over time. You don’t have ongoing monthly expenses and you maintain control of your assets.

But it means less cash flow for the business, and those assets depreciate over time. You also have to consider the cost of maintaining the infrastructure, upgrading it, securing it, backing it up and servicing it, as well as the cost of training IT staff.

A cloud-first approach avoids up-front costs. Instead, you pay-as-you-go with the ability to scale as needed. But this could add up in the long term if user seats run high or you move large data sets back and forth. While you don’t have to build your own infrastructure, there could still be costs associated with data migration.

Except in rare cases, most businesses use at least one cloud application. In addition, hybrid cloud is the ‘new normal,’ with 76 percent of organizations planning to use hybrid cloud for infrastructure services by 2020, according to an IDC InfoBrief.

With a hybrid approach, both CapEx and OpEx come into play — so it’s important to consider which applications are more cost-effective to run on-premises and which run better on cloud platforms. More agile applications, for example, might be better suited to an elastic cloud solution.

What else should I consider?

You need to understand how much data flows in and out of an application. Public cloud services are metered, so if your data volumes increase exponentially, so will your bill — unless you have a way of controlling it such as data classification.

Also consider what is (and is not) included in the cost of the cloud service, plus the storage, networking and security required. Match your workloads to the types of service available. Do you want on-demand instances or will reserved instances work? Reserved instances are cheaper but tie you into a specific time period, which won’t work for all applications.

The CapEx versus Opex debate is a nuanced one. It requires looking beyond the numbers and considering cloud as part of a broader strategy on the road to digital transformation.

To find out more about your cloud options, and how Cogeco Peer 1 can help you on your journey to digital transformation, download ‘The Business Leader’s Guide to Digital Transformation in the Cloud’ here now.

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