OPEX vs CAPEX: Cloud Infrastructure

OPEX vs CAPEX: The Benefit of Cloud Infrastructure over On-Premise Storage

The Benefit of Cloud Infrastructure over On-Premise Storage

Data storage and management are essential in the world we live in today, and the importance cannot be overemphasized. The need for proper data storage and management is woven into the very fabric of the existence of numerous companies. This includes large scale businesses to the firms that manage a vast number of clients, staff, and operational resources. Before now, local hardware-like local servers, known as on-premise storage infrastructure, are purchased. This made achieving the purpose of safe data-keeping straight-forward. This meant that companies purchased servers to store and manage their resources for as long as they existed.

The use of cloud storage and its infrastructure became a big thing because of the presence of the INTERNET. Like most things the internet has come with, it offers a new level of convenience and dependability. The move to full cloud-based systems by companies across the world – especially in Africa has been nothing short of slow. There are various reasons for this slow adoption, and Cost implication seems to be the primary limiting factor for implementation.

Traditionally, on-premise infrastructure, requires that each company purchase storage facilities in-house. This system, which is typically placed within the company, is purchased as a capital expenditure (CAPEX). It becomes depreciated in the company’s books over a space of some years because of the considerable cost attached to it. Cloud-based software, which is typically owned and managed by a cloud service provider, is purchased as required as an operating expense (OPEX). This is because it can be obtained when needed. Anybody with basic accounting knowledge knows that one of the first questions that need an answer is: “Aren’t they the same?”. For example, buying something at 1 million Naira and depreciating it over ten years at 100,000 is hypothetically the same as spending 100,000 Naira every year for ten years. The case is different for on-premise versus cloud infrastructure.


It is important to note that the difficulties of acquiring CAPEX or on-premise infrastructures go beyond the cost implication. Discussed below are the problems of purchasing on-premise infrastructures (CAPEX) as well as the different ways (OPEX) mitigates the stated challenges:

 Hit or Miss

When a company purchases storage infrastructure, it purchases one that exists typically for a specific period. The device in question is pre-set, and the storage infrastructure in place may not meet the company’s storage needs where there us a need to scale up operations. The company may own many resources. There may be a case of over or under-specification.  The cost is fixed, and it is inflexible too.

  • Acquiring Costs into The Future

Most times, Large amounts of expenditure are grouped into the category of capital expenditure. For a relatively new company, it won’t be wise to commit a considerable amount of infrastructure cost without knowing the growth capacity of the company. This means that relevant capital that can be used to improve other aspects of its business is tied up elsewhere. There is a considerable risk of not utilizing the appropriate capital’s full potential. For many organizations, this waste is costly and very avoidable.

  • Associated Costs of Owning Own Infrastructure

Just the same way additional costs of installation of a non-current asset is added (capitalized) to the overall price of the asset, the actual value of purchasing CAPEX is high compared to the OPEX because of the associated costs involved. Comparing the capital expenditure for the storage and payment of a set amount every month (with the assumption of full capacity) gives almost the same at total value. The cost can go up if when spread out and paid as an operating expenditure. This leads to an increment in other associated costs and raises the numbers to new heights.

Power is one of such costs. Powering a vast infrastructure that is not allowed to go off for more than a few hours every year is a massive cost that companies fail to account for or underestimate. Asides the central power system, Backup power is essential. The infrastructure needs to be kept at a specific temperature because the equipment needs to stay at a fixed temperature. This ultimately means that the purchase of a durable cooling system for the infrastructure is unavoidable.

The right level of security is required because the software can be vulnerable to cyber-attacks.  This could be by putting up firewalls on the infrastructure or hiring security personnel to man the premises which are associated costs. Personnel & monitoring costs, as well as many of the other listed prices, are fixed at whatever capacity on-premise devices are being used. Software licenses, integration, and the right amount of IT staff available to support and manage situations at the facility will attract other costs too. Many of these costs are not capitalized into the cost of CAPEX, leading to a false sense of affordability.

  • Obsolesce of Equipment

Where on-premise infrastructures are not used at full capacity and become obsolete, it is written off! This is undoubtedly equivalent to flushing money down the drain, and sadly, it is not a rarity as it happens often.

  • Lead Time in Asset Procurement

If the company realizes that it is below specification and an upgrade in its infrastructure is needed after a set period, there is a lead time associated with procuring more equipment. During this period, business activities could be stalled or not backed up properly.

Discussed above are the limitations cloud computing helps to curtail.


  • Pay for Only What You Use

With cloud infrastructure, there is no case of over-specification or under-specification as payment is made for only what is used. Any amount can be bought and increased as the need arises because storage infrastructure is purchased on a pay-as-you-go basis. This makes it easy for many companies to scale up or scale down operations effectively. It depends on their overall usage requirement as well as the actual growth of a company.

  • All Associated Costs Included Upfront

With cloud computing, asides the periodic OPEX, there are no extra associated costs. The provider bears the related expenses, and thanks to the principle of economies of scale, the cost provider spends less to acquire the same services of security, cooling, etc. which covers as many people sharing the same cloud infrastructure. The end-user is the biggest winner because the services cost less.

  • Experienced Team & Better Management of Infrastructure

With cloud providers focusing on cloud computing infrastructure as opposed to another company that has to still worry about its core business function, there is assurance because an experienced and well-trained team is in place to monitor and manage infrastructure when it is stored on the cloud. There is a high level of expertise resident at the data center, and the cloud software is monitored actively without additional stress on the client. The cloud offers easier and efficient data backup than on-premises servers.

  • The elasticity of Resources On-Demand

Unlike the on-premise system, the lead time is eliminated when there is a need to increase capacity or downsize operations. The on-premises infrastructure needs new hardware, but the cloud can adapt to any scale. Choosing a plan is just one click away.

  • Industry Experts Estimate 70% Savings on Cost

Research reveals that there are an estimated 70% savings on cost. If the rate of growth of the business is not as anticipated, the resources demanded can be downsized efficiently. Equally, if the rate of growth exceeds expectations, the resources to scale up are available immediately. The investment is considered an operating expense (OPEX), resulting in a lower monthly cost. The best part of it is that money never gets tied up without being used efficiently for the growth of the company.

With Cloud computing, money is saved, and processes are better altogether. Cloud computing is the way to go for the future, and making a move in this direction cannot be a wrong move at all.