Capital expenditure (CAPEX) versus operating expenses (OPEX)

The financial considerations for moving to the cloud are as important as the technical ones, and it is important for architects and technical cloud folks to understand these so that we don't sound dumb while discussing these at cocktail party conversations with the business guys.

• CAPEX refers to a large upfront spend of money used to get an asset (an asset is a resource that will yield benefits over time, not just in the current period)
• OPEX refers to smaller, recurring spends of money for current period benefit

Now, that the last line in the previous image makes clear the big difference between using the cloud versus going on-premise. If you use the cloud, you don't need to make the big upfront payment. That in turn has several associated advantages:

• No depreciation: When you buy a house, hopefully, it appreciates, but when you buy a car, it loses a fourth of its value as soon as you drive it out of the dealer's parking lot. Depreciation is called an intangible expense, but try selling a barely used car, and you will find it tangible enough. With the cloud, you don't worry about depreciation, but the cloud provider does.
• Transparency: Let's face it folks—big contracts are complicated and have been known to have big payoffs for people concerned. This is a reality of doing business: procurement and sourcing are messy businesses for a reason. Using the cloud is far more transparent and simpler for internal processes and audit
• Flexibility in capacity planning: The worlds of business and history are littered with unfulfilled ambitions and unrealistic plans and targets that went nowhere. Your firm might have a target to triple revenues in 3 years: such ambitious plans are common enough. If you, as an architect, sign off on a commensurate tripling in your server capacity and that business growth does not happen, the finance guys will come asking you why overspent if you are still in this firm 3 years down the line. At that point, you will likely not have the luxury of pointing a finger at the CEO who launched the 3X plan. He likely will have moved on adroitly to another shiny plan.

Note, incidentally, that we did not include straight cost as a reason to move to the cloud. The big cloud providers are all rolling in the money, their stock prices are surging on the heady cocktail of high revenue growth and high profitability. The cloud business is a great business to be in if you can get in. It stands to reason that if the suppliers of cloud services are doing so well financially, the consumers of cloud services are paying for it. So, cloud services are not necessarily cheap, they do, however, offer all of these other attractions that make it a real win-win for both sides in the bargain.