CapEx vs. OpEx. Which one is better? This is heavily debated today in business, but when it comes to cloud computing, we tend to see operational expenditure models. Today, technology is advancing so quickly that capital expenditure doesn’t always make sense. Let’s learn the differences between capital and operational expenditure.
Capital expenditure refers to major upfront purchases intended to create a future benefit. Ultimately, you own the investment you make, which is considered to be the major benefit of CapEx. Traditionally, this includes machinery, equipment, property, etc. However, with technology advancing at a phenomenal rate, capital expenditure just might not make as much sense for all businesses. When spending on technology solutions, updates are happening so quickly that a business might not be able to keep up if they are sticking to CapEx. Technology investments rapidly require ongoing maintenance, upgrades or replacements, which leads to more capital purchases, more often.
And once you’ve made a CapEx purchase, you’re pretty much stuck with it until it stops working or you’re willing to remake that upfront investment all over again, just to get the latest version. So you don’t necessarily receive upgrades as they’re available, and you’ll most likely either overspend or underspend because you’re lacking predictability. Especially with cloud solutions, this is becoming the less-desirable approach. It just doesn’t make sense to purchase hardware or software that tends to be outdated before your budget is ready. Ultimately, you pay big bucks upfront on something you might have to purchase again before you can handle the costs.
Operational expenditure, on the other hand, refers to expenses you experience on an ongoing basis (ex: monthly). You’ve probably heard it called a “pay-as-you-go” model. When it comes down to it, you’re essentially renting the product or service for as long as you need it and experiencing predictable costs. Typically, we see this with licensing and utilities, but it’s also the most common cloud solutions payment model.
The major perk here is scalability. With the as-needed flexibility that OpEx offers, you can adjust your resources, based on your needs, at any time. Consequently, you’ll see your costs adjust. This means you are only committed to a cloud solution for as long as it makes sense for YOU – and that’s pretty awesome. An added benefit of OpEx is solution upgrades. When you’re paying for cloud solutions monthly, you get upgrades as they become available. You don’t have to wait or repurchase the entire service. It’s simply part of the “subscription.” Additionally, a managed cloud provider owns and manages the data center and infrastructure you ultimately use for your solution, eliminating both capital expenditure and lowering operational expenditure. This frees up money that can instead go towards strategic business purchases and projects.
So what do you think? Do you see why businesses are able to save so much in the cloud?
If you’re interested in learning more about this topic, we have a free course dedicated to the differences between capital and operational expenditure. You can start “CapEx vs. OpEx” right here!