CAPEX Vs OPEX of the Cloud and other Financial Benefits

The cloud is the buzzword revolutionizing software and IT infrastructure the world over. Companies globally are leveraging the cutting-edge benefit of the cloud to get what works best for their IT network, Software & Apps. Cloud computing service cost is computed as OPEX and the purchase of a unit of a server as CAPEX. Let us try and analyze the cost-benefit of cloud-based technology beyond CAPEX Vs OPEX and look at other financial cost benefits.

  • Cost-benefit calculation:

A piece of equipment purchased can serve its intended purpose for up to 36 months before it is made obsolete. If you consider only this for an ROI calculation, the cost of running an instance of Azure/Amazon 24 X7 is much more expensive than purchasing a single unit of the server with a similar configuration. For organizations heavily dependent on IT, the calculation is flawed. The indirect (network and storage infrastructure and IT operations to manage the general infrastructure) and direct cost (Power, floor space, etc of running a server is completely ignored in this calculation. When all these costs are added, the overall cost of renting cloud space works cheaper than purchasing a server. A cloud instance purchase considered OPEX is much cheaper than a CAPEX on a server purchase.

  • Upsize & Downsize on the go: 

A variable OPEX is no financially prudent way of running operations. This is true if the nature of your operations is “set and forget”. The “set and forget” model holds rarely true for an organization with IT as the core of its business. Cloud instance offers scalability and allows for a ramp-up and ramp-down based on seasonal spikes and usage patterns. This flexibility allows for payment to be made for what you use. You will no longer be bogged down by excess hardware or the lack of it. The implied benefit of this is that you pay lower OPEX for maintaining the cloud during lean seasons. When a user is finished with the resources, it is returned back to the provider. The utilization responsibility rests with the provider and he has to figure out how to make sufficient use of the resources.

  • Lesser Financial Liability: 

The only thing that frees a user from making a significant long-term investment is the ability to start off small. Cloud solutions being scalable can be started out as small and can be scaled up hence, financially valuable. The short-term premium paid for cloud services is less expensive than a higher rate for a shorter period for a server purchase.

  • Automation Saves: 

In today’s world, organizations across the globe are realizing the benefit of automation. Tools and automation in cloud services offer facilities for resource termination and instantiation. The biggest advantage of automating is the ability to optimize resource usage based on demand and usage. The load and usage pattern help the automation tools to determine how many instances or resources to be up and running at any given period of time. Advances made in these tools offer autonomous management of these processes with limited or no manual intervention. An environment like this incurs smaller transaction costs making “down and off” more viable.

The above is clear evidence of the cost-benefit of cloud instances over a conventional server. Financial benefits are one of the biggest reasons for the exponential cloud adoption rate among organizations in the recent past and will also drive the future of cloud computing.

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