When a company considers moving to the cloud, one of the most discussed topics is how the investment will hit their balance sheet. While calculating cloud computing costs, the terms “CapEx” and “OpEx” are often raised, but both the definitions and the advantages of the two are often. . . shall we say, cloudy? Let’s clear up some confusion.
CapEx vs. OpEx – A Quick Overview
For those of us who shied away from accounting classes in college, here’s a quick overview.
- CapEx (Capital Expenditure) Owning an asset is commonly considered a capital expenditure. It requires payment for the entire asset and the cost becomes an entry on the company’s balance sheet, depreciated over some period of time. Some examples of capital expenditures include buildings, computer equipment or a company car.
- OpEx (Operational Expenditures) These expenditures are associated with operating the business over a short period, typically a year. All payments during this year count against the income statement and do not directly affect the balance sheet. Some examples of operating expenditures include sales, utilities and rental car fees.
With the explosion of data and mobile apps, companies are challenged to determine what resource requirements are necessary to successfully migrate and operate in the cloud – today and in the future. Many don’t want to pay a flat fee to build and maintain their own data centers since they may need to “spin up” or scale back their virtual machine (VM) capacity based on market demands (for example, during “Black Friday” for retailers or peak travel dates for airlines), short-term testing, or short-lived business initiatives. In those instances, committing a one-time capital expenditure and a multi-year depreciation schedule isn’t cost-effective or desirable.
Bottom-line: companies want to pay only for what they use – period. Cloud service providers allow organizations to adopt a “pay as they go” or OpEx model, which allows companies to engage the resources and expertise of cloud hosting experts, pay for what they use, and realize potential cost benefits throughout the year.
Rather than just selling hardware, speeds and feed, cloud solutions partners need to be adept at anticipating and addressing their customers’ changing resource requirements. AT HOSTING, our enterprise cloud solution architects possess a solid blend of business acumen and superior technical skills. Leveraging proprietary tool sets, they run tests in your environment prior to migration to fully understand your current and future resource requirements. After your cloud migration is complete, they continuously monitor utilization and adjust resource allocations as needed to minimize or even eliminate unnecessary capacity. So you can adjust your resources as demand fluctuates, knowing that you have the right resources at the right time without overspending.
And that looks good on any balance sheet.
To learn more about the changing face of IT and how they are leveraging cloud computing solutions, please download our white paper, Cloud Computing Opportunities for Mid-market Companies.