Capital Expenditure (CapEx) vs Operational Expenditure (OpEx)

• Before: up-front cost in hardware and infrastructure to start or grow a business (CapEx)
  • With cloud: Use services without significant upfront costs or equipment setup time (OpEx)
• 📝 Hybrid solution = combine both in cloud with using both on-premises (CapEx) and cloud (OpEx)
• Also possible to have CapEx in cloud with e.g. Azure Reserved VM Instances
• CapEx model is also sometimes use in cloud

Capital Expenditure (CapEx)

• Spending of money on physical infrastructure up front
  • and then deducting that expense from your tax bill over time.
• An upfront cost, which has a value that reduces over time.

Costs of CapEx

• E.g. server, storage, network, backup & archive, organization continuity and disaster recovery, datacenter infrastructure, technical personal.

Benefits of CapEx

• Plan your expenses at the start of a project or budget period.
• Your costs are fixed, meaning you know exactly how much is being spent.
• 💡 Appealing when you need to predict the expenses before a project starts due to a limited budget.

Operational Expenditure (OpEx)

• Spending money on services or products now and being billed for them now.
  • There’s no upfront cost: You pay for a service or product as you use it
• Deduct expense from your tax bill in the same year.

Billing of OpEx

• As soon as the provider provisions resources, billing starts
  • your responsibility to de-provision the resources when they aren’t in use so that you can minimize costs.
• Cloud computing can bill in various ways e.g.
  • Number of users, CPU usage time, allocated RAM, I/O operations per second (IOPS), and storage space.
• Billing at the user or organization level.
• Pay-per-use (or subscription model)
  • Designed for both organizations and users
  • billed for the services used, typically on a recurring basis
  • E.g. when using a dedicated cloud service, you could pay based on server hardware and usage.

Costs of OpEx

• Leasing software and customized features
• Scaling charges based on usage/demand instead of fixed hardware or capacity.
• 💡Plan for backup traffic and disaster recovery traffic to determine the bandwidth needed.

Benefits of OpEx

• CapEx challange: Demand and growth can be unpredictable and can outpace expectation
• Companies wanting to try a new product or service don’t need to invest in equipment
  • Instead, they pay as much or as little for the infrastructure as required.
• OpEx is particularly appealing if the demand fluctuates or is unknown
• Enables cloud agility
  • Ability to rapidly change an IT infrastructure to adapt to the evolving needs of the business
  • Manage your costs dynamically, optimizing spending as requirements change.
  • E.g. service peaks one month => pay more, demand drops next month => pay less