By Joe Testa, CFO at Yotta280
Dec 9, 2011

Yotta280 Online Data Backup Expert Tips: CapEx and OpEx Expenses in the Cloud

Owning and operating a data center is no longer considered a sign of corporate wisdom. Private cloud computing concepts and utility services in the cloud are redirecting established understandings of data privacy and stimulating new modes of thinking. The recent recession (that resulted in budget cuts and rethinks on capital investments), made a business case for the cloud. This in turn promoted a debate around CapEx and OpEx. [Accounting experts call capital intensive expenditure CapEx (Capital Expenses) and revenue intensive expenses OpEx (Operating Expenses)].

A quick look at the history of technology, in context, is revealing. The CapEx vs OpEx debate is not new. The outcome is pre-determined. Companies that considered it important to generate their own power during the industrial revolution initially set up their own power plants. However, they quickly gave up the idea of investing in power generating equipment and even let their investments rust, when power was provided as a utility by enterprises that made power their business. They found that it was cheaper to buy power than generate it themselves. It is, therefore, axiomatic that capital intensive data centers will be given up in favor of utility based services in the cloud.

It is, therefore, not surprising that much of the discussion around CapEx and OpEx in the cloud is centered on costs. Of course, the bottom line for the business is profit. But, a simplified calculation of CapEx or OpEx costs is not possible.

The mathematics of CapEx is not as basic as taking the average selling price of an IU server and dividing it by 36 months (which is the average expected life of equipment)! There are associated costs, which cannot be ignored such as power, floor space, storage, IT operations or overhead costs of various kinds that exercise the attention of Accountants. Every cost adds to the overall cost and significantly contributes to the monthly expenses. Furthermore, cost comparisons—that do not engage the attention of accountants–ignore the utilization ratios of the internal server and the opportunity costs that are lost at different levels of utilization.

Those who pontificate on the OpEx advantages of the cloud and hold forth on the pay as you go options, fail to appreciate it completely. The significance does not lie in merely costs. If OpEx is projected over a long time line, it could prove to be more expensive than CapEx options!

However, there are no long term commitments associated with cloud storage accounts. OpEx is not limited by public markets as it does not tie up capital and is extremely attractive to businesses that have their eye fixed on the profit margins. The potential scalability option itself carries value and enterprises in the cloud may even be willing to pay a premium for that flexibility! End users migrating to the cloud will find that they can maintain one or more web applications at a fraction of the normal cost. The hardware utilization ratio jumps up to 80%.

Server technology refreshes are a thing of the past. There is a significant dip in the cost of designing or deploying new applications. Operational efficiency can be achieved through a single infrastructure practice and overheads can be reduced through effective self service.

The reality is that Cloud technology is disruptive and debates around disruptive concepts are unavoidable.

Yotta280 recommends YottaVault, an avant-garde cloud data backup and recovery solution specifically designed for Mid-sized to Enterprise organizations. Differentiated by its numerous value-added and industry leading features – agentless technology, on-site portable local storage, multiple off site data centers, FIPS 140-2 certification and virtual environments support.

About the Author: Joe Testa, CFO of Yotta280, an Asigra cloud backup and recovery partner. Joe is one of the founders of Yotta280 and has over thirty years experience in finance and investments. He provides significant executive and financial direction from his professional experiences as President of Rising Tide Capital, LLC, a business consulting and venture capital firm and President of Testa Financial Management, Inc., a Registered Investment Advisor. Joe is also a Founding Director of Marquis Bank and is a noted lecturer on economics and business. He is a graduate of the University of Pittsburgh.

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