When moving forward with a hardware upgrade to a cloud solution, it’s important to consider the costs, or more importantly the cost savings. An upgrade can seem expensive, which might dissuade you from going through with one, even if it’s a good idea in theory. Luckily, there are two ways to go about making this purchase. The first and more traditional way is through a process known as capital expenditure, or capex. The second and often more desirable option, is referred to as an operational expenditure or opex.
Capital Expenses (capex)
Capex refers to money spent on fixed assets. Anything a company or an organization spends on once, be it a server array, desks, printers, vehicles, signs, or flowerbeds, falls under this category. There are several advantages to capex. Assets purchased this way can be depreciated over time, and the long-term total cost of ownership is lower than a similar opex expense. However, large upfront payments can upset cash flow, and may not cover all the necessities, especially if moving to the cloud comes into play.
For example, let’s say you were to purchase a new UC Cisco solution as capex. One upfront payment would make you the proud owner of a brand-new server array that you would have free reign to do whatever you want with. That is, of course, unless you can’t afford it. Let’s make a conservative estimate and suggest this server array costs somewhere between $500,000 and $1M, not including maintenance or warranty payments. Maybe you don’t have the budget to drop that much money on one purchase now, and you’re worried that a lack of short-term return on the investment might hinder other projects. Not to mention the labor, utilities, and HVAC involved in owning and operating a new server array.
Luckily, there’s another way to do it. Through opex.
Operational Expenses (opex)
refers to regular payments made to cover consistent expenses at certain intervals. Utilities that power your buildings are an operational expense. Seasonal HVAC costs, printer ink, and kitchens with coffee are also operational expenses. For the cloud, opex generally refers to leasing hardware. In terms of initial payments, opex will always appear lower than capex, but don’t let the numbers fool you. In the long term, it will always be more expensive to lease than to buy. Still, leasing hardware is on the rise, and there are many cases where the numbers show it’s the right choice.
Let’s return to the earlier example. This time, you’re looking to upgrade to a cloud-based Cisco solution, but instead of purchasing the hardware, you choose to lease it. Where you would otherwise be spending thousands at the onset, in this case, your monthly payment is much less and in many cases, includes the labor to maintain your cloud-based servers. While you may not be the owner of this new server, its low upfront costs can free up cashflow and potentially offer a better return on your investment dollars.
Capex Versus Opex for Cloud Solutions
So which option is the best for purchasing cloud-based technology? The answer isn’t necessarily cut and dry. Capex and opex are accounted for on different budgets and have a plethora of pros and cons. Capex may be more expensive at the onset but it comes with independence as well as long-term cost savings. Opex may cost more in the end but could be a better fit for your cash flow and can lead to less problems later.
While there are two distinct camps, those who remain convinced moving from capex to opex for cloud solutions is the best option, and those who do not, the decision is ultimately situational. Still, there are other things to consider with hardware purchases. Owning and managing a vast, complex cloud solutions network may seem excitingly prestigious, but bear in mind on whom the responsibility lies. Should your hardware break or be rendered obsolete, capex would be far more costly than opex.
Capex Problems, Opex Solutions
Capex can also be a financial burden, while opex on the other hand, provides the option to only pay a monthly subscription for the necessary type of license. This license is important for security updates, as well as feature rich releases that will ensure that you’re always using the latest version without the need for any internal resources. Capex generally won’t provide these things, meaning they are added costs, or at the very least, added hassle.
Reducing the cost of support with opex helps to provide stability for the modern workplace, adding 99 percent network uptime for any cloud-based solution. Whatever the total cost may be, this method will create a more attractive balance sheet, improving the company’s overall financial health.
Before deciding how to proceed with purchasing or upgrading your cloud computing hardware, be sure to weigh all the options and all their pros and cons. Whether you choose to pay upfront or pay as you go, consider what’s right for your business both short and long-term. Your success will be determined on more than how much money you save. Experts are saying that opex is the way of the future, especially for cloud computing. Soon enough, big, expensive hardware contracts may become a thing of the past.