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The Faction Insider

Financial Analysis: Is on-premise infrastructure (CapEx) really that much different than Cloud (OpEx)?

At Faction, we hear from organizations of all shapes and sizes that are evaluating when and how they should leverage the Cloud vs. on-premise infrastructure.  There are countless things to consider within these evaluations, such as:

  1. which workloads are or aren’t Cloud capable
  2. whose job will be affected by the changes
  3. which Cloud provider you should use: public Cloud vs private Cloud, is a SaaS model better than an IaaS model, etc.

Inevitably, many of these decisions come down to the financial total cost of ownership (TCO) of Cloud vs. on-prem.  Traditionally, the Cloud vs. on-premise financial analysis has been centered around the theory of CapEx vs. OpEx.

 

A common misunderstanding we often hear is that on-premise infrastructure is a CapEx investment.

In reality, buying on-premise infrastructure is both a CapEx and OpEx investment, while the Cloud is typically only an OpEx investment. In fact, we often hear things like, “I can buy my servers for $100k, why would I pay you $8k/mo?  I would break even and be losing money in about a year.”  Typically, this is not an accurate assessment, so let’s break it down.

 

In one, flat monthly Faction Cloud subscription, all of the following costs are replaced:

  • Hardware Acquisition (CapEx)
  • Hardware Support (CapEx)
  • Colocation (OpEx)
  • Power and Cooling (OpEx)
  • Remote Hands (Mix)
  • VMware Licensing (CapEx)
  • Windows Server Licensing (CapEx)
  • Engineer Travel Costs (OpEx)
  • Networking Infrastructure (CapEx)
  • Bandwidth (OpEx)
  • Professional and Managed Services (Mix)
  • 4th Year Support Renewal (CapEx)
  • Labor (OpEx)

 

As you can see, on-premise CapEx still requires ongoing OpEx, much like the Cloud. There are a lot more CapEx investments involved in a hardware refresh beyond simply buying the servers.  Furthermore, supporting an on-premise environment requires many recurring OpEx investments that are too often not taken into account when performing a TCO analysis.  Everything listed above, including the VMware and Windows licensing, is included in a Faction Cloud monthly subscription fee, therefore all the expenses need to be taken into account and comparing apples to apples is needed to complete a truly comprehensive TCO analysis.

 

If you want to learn more about this topic and leverage the Faction TCO calculator, download our Moving from CapEx to OpEx eBook!