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CapEx vs. OpEx: What’s the Difference?

In today’s IT world, the technology purchasing process can be a pain, as you have to consider dozens of factors. Which solutions to obtain or the most compatible technology for a business are crucial understandings to have when processing an IT investment.

The economics of cloud computing will continue to be a consistent subject, as will the phrase “CapEx vs. OpEx”. Capital expenditure occurs when companies use their own infrastructure to power their IT and store data. Operational expenditure is the spending model used with cloud computing, allowing companies to use external cloud services that offer pay-as-you-go services. The two terms can be misunderstood and can effect the choice a company makes.

Let’s review the difference between CapEx and OpEx:

CapEx

Capital Expenditure (CapEx) is defined as a single, upfront payment for an IT resource, like the traditional purchases of software, servers, desktops, etc. These payments can include physical equipment, maintenance, or upgrades. CapEx is considered to also be any such property that includes owned software licenses. It can be measured by on-premises data centers, which include the costs of running servers, power, storage, and IT operations. Owning in-house equipment can procure many other assets such as account personnel and constant IT management and attention. CapEx can be valuable in the sense that it leaves you in complete control of your resources, and in some circumstances, even allows you to apply tax benefits, but it doesn’t take into account today’s speedy refresh cycles or changing business needs.

OpEx

Operational Expenditure (Opex) is defined as a reoccurring cost that is traditionally spent on day-to-day necessities that are needed to keep a business or organization running. These expenses are included as part of a company’s profits and loss, which creates the benefit of not having a long-term commitment. There is no massive, upfront payment required. Instead, businesses face a fixed monthly cost, and a solution that can be scaled accordingly. Scalability is the key benefit here, as a business can adjust its resources based on its needs and see prices adjust too. The value of operational expenditure really hits home when a business is able to decrease its costs and still maintain the same level of production and quality.


CapEx OpEx
  • Lump sum, upfront fees
  • Annual maintenance fees
  • 18-24 month refresh cycles
  • Tax benefits
  • Upgrade and IT costs/risks
  • Pay As You Go
  • Maintenance included
  • Vendor takes care of IT and upgrades
  • Monthly innovation
  • Work off the latest technology

OpEx or CapEx for Cloud?

Today’s cloud-based solutions favor an OpEx model over CapEx. Why?

OpEx frees up cash that can be reallocated to other sectors of an organization. Businesses have the ability to eliminate hardware and move into a virtual cloud environment, which gets rid of constant maintenance and upgrades on traditional technology. The cloud works hand and hand with the operational expense model. The cloud provides a pay-as-you-go plan that allows business to spend only on what they need. Technology is constant and it makes no sense to sink money into technology that can quickly become obsolete. OpEx creates not only scalability for a company but flexibility as well. Hardware failures, constant upgrades, energy costs – these no longer have to be nightmares for company’s IT department. Instead, cloud and OpEx free up productivity for the IT department and help businesses invest money wisely, if they choose the right cloud provider to do so.

Businesses can reduce upfront capital expenditure with RapidScale’s cloud solutions. RapidScale takes care of purchasing, storing and maintaining the infrastructure that businesses use. RapidScale’s CloudServer, for example, eliminates these capital expenses and moves companies to an OpEx model with virtual, enterprise-grade servers. RapidScale’s team takes care of installation, maintenance and management of a company’s infrastructure. With a full-scale, 24x7x365 monitoring team as an option, RapidScale’s CloudServer solution offers a worry-free guarantee, a team that has your back, and market-leading technology to power your business.

Want to learn more about the difference between OpEx and CapEx, and how cloud can save a business money? Start our course: Financial Benefits of Cloud Computing.

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