OPEX Model and Cloud Computing

OPEX Model is often mentioned in the context of Cloud Computing. CAPEX, OPEX like terminologies are explained here in plain English. Operating expenses (OPEX) are the current costs to operate a product, business, or system. Expenditure on capital investment (CAPEX), refer to the costs of developing or providing non-consumable parts for the product or system.

For example, buying a photocopier is the CAPEX, and the annual cost of paper and toner consumed is OPEX. For larger systems like businesses, OPEX may also include the cost of staff and service expenses such as money spent for water, gas, electricity etc. When we say ; “moving to cloud” it refers to the moving away from the CAPEX model (buying the dedicated hardware for datacenter) towards the OPEX model (use a cloud infrastructure and pay as you go). OPEX Model is difficult terminology, hence we often refer the usage or consumption and payment on Cloud Computing Platform as using a “Pay as You Go” model. In other words, normally Cloud Computing follows the OPEX Model.

Controllable and non-controllable OPEX Are Also Applicable To Cloud Computing

Among the OPEX Models, the company distinguishes OPEX  as “controllable” OPEX on which the network manager has no control.  Controllable OPEX correspond to the “running costs of business” and includes labor costs, costs of materials and subcontractors, expenditure on studies, computational costs, communication costs, insurance costs and an allocation of overheads. Sometimes the choices between CAPEX and OPEX are difficult, especially on intangible assets.

The subject, OPEX Model and Cloud Computing is the heart of the concerns of IT departments with particular attention to SaaS (Software as a service) model. IaaS not really runs on full OPEX Model. We are explaining but it is important to read the article explaining Cloud Computing Service Models and Deployment before understanding the facts.

Why Cloud Computing is Not Always a controllable OPEX Model

How it is possible to precisely tell Cloud Computing runs on OPEX Model, considering the facts :

1. IaaS, i.e. Managed Cloud Servers has one fixed fee for the management plus a charge for bandwidth usage. That is it is said that, Sometimes the choices between CAPEX and OPEX are difficult, especially on intangible assets. The managed Service means Service provided by some human beings; but they are nether your employees nor are individually employed for you.
2. Hybrid Cloud is more difficult to classify – it needs a CAPEX Model (Either own Datacenter or a Dedicated Server) and a kind of OPEX Model.
3. Bandwidth consumption increases the bill but not necessarily consumption increases the Return of Investment.

Indeed, the Internet activity generates low cost compared to traditional operating expenses. The same market orientation focuses more operating expenses rather than the capital expenditures.