Cloud Economics: A Strategic Change from CapEx to OpEx

David Powell, VP of Managed and Cloud Services, TekLinks
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David Powell, VP of Managed and Cloud Services, TekLinks

Historically, businesses looking to build a data center chose an on-premise development model that allowed them to physically see that their data would be both private and secure. This model was certainly secure, but it came with a high price tag that was based on the large capital expenditure (CapEx) investment required. CapEx solutions typically have larger up-front costs for hardware that depreciate over time. These CapEx investments result in on-premise data centers that take up space, consume electricity, require specialized cooling, and a staff dedicated to their maintenance. Additionally, they often require upgrades that were not always apparent during initial planning.

Now thanks to the incredible momentum and build-up of secure cloud computing environments, the pendulum is swinging the other way. Today, businesses are beginning to migrate mission-critical data to the cloud because of security, not in spite of it. Cloud services providers now provide their clients with environments that are fully redundant, encrypted, and protected against the threat of malicious attacks or downtime. So business owners are able to trust the cloud more and more to help them achieve their performance goals in a cost-effective way.

“Cloud solutions add flexibility to the work environment so that employees can communicate in more innovative and effective ways”

Moreover, these cloud solutions are significantly lower in CapEx costs. Instead cost is based on usage or operating expenditure (OpEx). Simply put, OpEx investments generally require lower ongoing operating costs that provide the benefit of a reduction in initial investments. OpEx solutions greatly eliminate traditional CapEx costs. While an off-site data center provides a business client with constant connectivity, storage, and redundancy, the service provider takes on the maintenance and the “power-cool-connect” costs of running the data center. So businesses can simply include the predictable costs of these cloud services in their overall operating budget, rather than paying for a support staff and gathering funds every three to five years to purchase expensive hardware in need of upgrades. This kind of “pay-as-you-consume” model is particularly attractive to owners and managers of small-to-midsize companies, who often lack the resources to employ their own IT staff.

Additionally, these cloud solutions add flexibility to the work environment so that employees can communicate in more innovative and effective ways, while freeing up funds, typically earmarked for hardware and software upgrades, that can be applied toward other investments and big projects related to their line-of-business requirements.

Software and the Cloud

And it’s not just benefits from data center hardware that companies can realize; it’s software as well. Here are five reasons to consider moving software to the cloud:

1. Increase your bottom line by reducing your total cost of ownership. Businesses can stop spending capital on server upgrades to keep up with new software versions every 3-5 years. Putting your software in the cloud – whether it be a vertical solution or a department solution –means automated upgrades within a fully managed cloud environment. Your bottom line will reflect the significant cost savings of evergreen technology over time.

2. Protect your business and stay compliant. In many industries, government and industry regulations are a concern. But a robust cloud-based service should feature encrypted off-site cloud backups and end-to-end security measures to combat data breaches or loss.

3. Experience flexibility with secure access anytime, anywhere. In many cases, you can easily access your cloud-based software via any mobile device wherever you are. This is ideal for multi-location businesses or telecommuting workforces that need to work from home or while traveling.

4. Get out of the IT business and get back to your business. While your cloud hosting provider manages all of your IT needs, from licensing updates to daily maintenance, you and your staff can focus on what you do best – serving your clients, customers or patients.

5. Trust cloud-based business continuity when it matters most. With your industry-specific software running in the cloud with regular backups, you’ll rest easy knowing that your data remains safe and accessible, even if your office experiences a period of downtime.

Moving business data and software to the cloud is something that we expect to hear more about as the cloud market matures. It’s already beginning to be a hot topic of conversation; for example, at the NexGen Cloud Conference & Expo, a new vendor-neutral cloud conference taking place in December in San Diego, vendors, solution providers, analysts and industry pundits are gathering to talk about how businesses can best cloud-enable their IT functions, operationalizing their CapEx (as we’ve mentioned), and the role cloud service providers play in performing this function better and more cost-effectively than businesses can manage on their own.

In fact, as cloud services providers have honed their deployment, service, and support models, businesses are finding that, over time, the OpEx IT solutions available in the cloud are preferable, not only because they require less startup investments, but also because they reduce the overall maintenance (and replacement) costs associated with traditional CapEx IT solutions.