iS Cloud (AWS) computing actually cheap !? part 1

Introduction:

The enterprise IT landscape has rapidly changed over the past decade, with organizations opting for the advantages of the cloud versus on-premises data centers. With this shift, businesses are seeing an increase in OpEx and a decrease in CapEx. There is little debate that there are big advantages with cost savings when moving to the cloud. And when it comes to cloud ROI, comparing capital expenses (CapEx) to operational expenses (OpEx) reveals the cloud is a great way to switch IT spending to a pay-as-you-go model and reduce CapEx costs, as well as reap other benefits. Traditionally, companies relied on in-house models for data centers that required a huge CapEx investment as they purchased space, equipment, software, and a workforce to run and maintain everything. These companies were assured of secure data monitoring and security, but at what cost?
Today companies still need the same tight security and oversight, but also more flexibility and more cost-effective solutions.
If you aren’t sure if cloud solutions will be beneficial to your business, this post will detail what you need to know about CapEx vs. OpEx of cloud computing and the financial ramifications of each. We’ll show you an honest comparison of each option and how you can get started with putting the cloud to work for your business.
If you’re looking to make changes in your business’s IT capabilities and equipment, you have two financial models to choose from: capital expenditure (CapEx) or operating expenditure (OpEx). These models aren’t unique to IT; they apply to business expenses universally. But with so many new approaches available for handling companies’ IT needs, it’s important to review how these types of expenses should be considered when assessing solutions for your business.
Let’s explore what are CapEx and OpEx, the differences between them and how they apply to IT expenditures.
solutions for your business.

What is Capital Expenditure (CapEx)?

CapEx  refers to one-time upfront costs incurred for assets that will be used in the future where you pay up front for a fixed cost. A capital purchase shows up in the company balance sheet and depreciates in value over its lifetime. The business expects to derive value from the asset for a period of time longer than a single tax year.
Since the upfront cost could be substantial, budgeting for CapEx involves setting some money aside for these types of purchases. It usually also means that a more stringent process is required to be followed to get approvals on these purchases.
it is a business expenses incurred in order to create long-term benefits in the future, it is the initial spending of money ( whole together ) on physical infrastructure. Some examples of IT items that fall under this category would be whole systems and servers or air conditioners and generators.
You buy these items once and they benefit your business for many, many years. Maintenance of such items is also considered CapEx, as it extends their lifetime and usefulness.
When it comes to taxation, CapEx deductions must be amortized over the lifetime of the asset.
CapEx model gives you stability. You are already aware that how much you have to spend, at least on an annual basis. However, this cost comes with uninformed or unpredictable results attached to it. In this model, how the initial cost will depreciate over time is a certainty but the exact value of the investment each subsequent year is still needed to be determined
These are some of  the examples of Capital Expenditure:

• Manufacturing plants, equipment, and machinery.
• Computers and Hardware.
• Building improvements.
• Disposal decision.

What is operational expenditure (OpEx)?

An operational expenditure (Opex) is the money a company spends on an ongoing, day-to-day basis in order to run Operating expenses
it is like a pay-as-you-go service. You can deduct this expense in the same year you spend it. There is no up-front cost, as you pay for a service or product as you use it. It is as the name suggests, the expense of daily operation.
OpEx expenses cover pay as you utilize things. At the point when goods or services are bought as an OpEx item.
OpEx is your operating costs, the expenses to run day-to-day business, like services and consumable items that get used up and are paid for according to use.
This includes printer cartridges and paper, electricity, and even yearly services like website hosting or domain registrations. These things are necessary for your business’s success but are not considered major long-term investments like CapEx items.
These are some of  the examples of operational expenditure :

• Interest paid on debt.
• Property taxes.
• Accounting and legal fees.
• Wages and salaries.
• Business travel.
• Rent and utilities.

CapEx vs OpEx costs in cloud computing

CapEx computing costs

A typical on-premise datacenter includes costs such as:

• Server hardware & software:
  This includes all hardware components and the cost of supporting them. It is vital that when you purchase servers, that you make sure that redundancy and resilience is built in. Areas to consider such as server clustering, redundant power supplies, and uninterruptible power supplies (UPS).
  When the business needs a server or is refreshing old hardware, you need to pay for the hardware, support and software. This type of investment is often carefully budgeted for (when possible) but can still affect your immediate cash flow, as you must pay for the server up front.

• Storage costs:
  This includes all storage hardware components and the cost of supporting it. Based on factors such as the application, level of fault tolerance, high performance storage can be expensive. Some larger organizations, also create tiers of storage where more expensive high performance, fault‐tolerant storage is used for critical applications and lower performance, lower cost storage is used for lower priority data.

• Network costs:
  Networking includes all on-premise hardware components, including cabling, switches, wireless access points, and routers.

• Backup and archive costs:
  Backup and data integrity is key in any business. Some organizations may set up a backup to or from the cloud. There’s an upfront cost for the hardware and additional costs for backup maintenance and consumables like tapes (when used, yes a lot of companies still use tape)

• Organization continuity and disaster recovery costs:
  As well as building in server fault tolerance and redundancy, you should also plan for how to recover from a disaster and continue operating. Your plan should consist of creating a data recovery site.
  It could also include power generators. Most of these are upfront costs, especially if you build a data recovery site, but there’s also an additional ongoing cost for the infrastructure and its maintenance.

• Datacenter infrastructure costs
  These are costs for construction and building equipment, as well as future renovation costs that may arise. In addition, IT infrastructure incurs operational expenses for electricity, floor space, cooling, and building maintenance.

• Technical teams
  Not a CapEx costs but you will need the technical expertise and workforce to install, deploy, and manage the systems in the datacenter and at the data recovery site.

OpEx cloud computing costs

With cloud computing, many of the costs associated with an on-premise data center become the responsibility of the service provider. Instead of thinking about physical hardware and data center costs, cloud computing has a different set of costs. For accounting purposes, all of these costs are operational expenses (OpEx):

• Leasing software and customized features: Using cloud computing isn’t without overheads. For example a pay-per-use model requires actively managing your subscriptions to ensure users do not misuse the services, and that accounts and systems that are provisioned are being effectively utilized and not wasted. Remember – As soon as the provider provisions resources, the billing starts. It is your responsibility to de-provision the resources when they aren’t in use so that you can minimize costs.

• Scaling charges based on usage/demand instead of fixed hardware or capacity:
  Cloud computing can have multiple methods of billing, such as the number of users or CPU usage time. However, billing categories can also include allocated RAM, I/O operations per second (IOPS), and data storage space. It is also important to plan for backup traffic and data recovery traffic to determine the actual capacity of bandwidth needed.

• Billing at the user or organization level:
  The subscription (pay-per-use) model is a computing billing method that is designed for both organizations and users. The organization or user is billed for the services used, commonly on a recurring basis. You can provision, customize and scale computing resources, including software, storage, and development platforms. As an example, when using a dedicated cloud service, you could pay based on server hardware and usage.

Benefits of CapEx:

With capital expenditures, you can normally plan your expenses at the start of a project or budget period. Your costs are fixed, meaning you know exactly how much is due to be spent. This is really appealing when you need to predict the expenses before a project starts due to a limited budget.

Benefits of OpEx

Demand and growth can be unpredictable and can be known to outpace expectation. This is a challenge for the CapEx model as shown in the following graph.
With the OpEx model, companies who have spare capacity and want to try a new product or service don’t need to invest in equipment. Instead, they pay as much or as little for the infrastructure as required.
OpEx is particularly appealing if the business is a start up or seasonal, when the demand fluctuates or is unknown. Cloud services are often said to be agile. This means that it has ability to rapidly change an IT infrastructure to adapt to the evolving needs of the business. As an example, if your service peaks one month, you can scale to demand and pay a larger bill for the month. If the following month the demand drops, you can often reduce the used resources and be charged less. This agility lets you manage your costs dynamically, optimizing spending as requirements change.

Is cloud computing really cost-effective?

Cloud computing is actually cheap:

Not that long ago, deploying a new online application was quite an undertaking - you needed to buy/license servers, set up networking, take care of security and operations, pay for hosting, Internet access, and power, maintain software updates, and then finally work on your application. This is many man-hours and a huge upfront cost before even being able to validate that your application provides value to the customer.
For a few dollars a month, you'll be able to run instances, managed databases. Cloud providers also manage backups, security, monitoring, and the freedom to scale as needed to support your application.
Even when scaling up, cloud computing is cheap. Managing physical infrastructure is expensive, and is a huge time sinker for engineers that should be focusing on solving problems core to your business.
Cloud computing is cost-effective as compared to an on-premises system. Because Cloud providers operate on economy-of-scale, it is easy for them to set up, operate and maintain their large systems.
Cloud computing is cost-effective in the following ways:

• Flexible business model:
  Cloud computing is billed to the user on a pay-as-you-go model. It is ideal for businesses because they do not have to block their money by not using resources. Its flexibility to scale up and scale down provide freedom to adjust their usage according to the need of the business growth.

• No initial investment in hardware and software:
  In the case of switching to the Cloud, companies don't have to make sizeable initial investments in hardware, networking and licensing.
  They also have not to spend a large sum on servers and related equipment. With a traditional on-premise environment, organizations have to purchase licenses of the servers and other applications; cloud computing is an excellent way to save such costs.

• Less operating cost:
  Hardware requires maintenance cost of the running system properly. Physical hardware requires physical maintenance. Someone has to make sure everything is running properly and fix things when they break. It involves money and skilled employees to update software.
  A reliable system requires resources for power backup, redundant servers, 27/4 operations, redundant servers and many other things.

• No Hardware Replacements
  As technology evolves, organizations needs update and the latest equipment to stay up-to-date and competitive, second organizations replace their hardware to avoid equipment failures.

• Cost-saving on system security
  Cloud providers can afford expensive security software and experts. Because of their extensive system, it is feasible for them to afford expensive security software. Security experts of Cloud systems have the full-time responsibility of ensuring security. Affording such protection is not possible for a single company.

The cloud cost advantage is clear – it saves money and it helps you make money. By adopting OpEx IT services and goods you cut out wasted capabilities, time, and resources better spent on your own projects and services.

Intangible assets

In the digital age, more and more assets have become intangible. That is to say, where before businesses invested in physical locations, equipment, materials, and supplies to function, today an increasing number of startups and big-name companies have surprisingly few physical assets to their name and rather build value with ideas and information, intellectual property, and branding.
Many factors are driving the recognition of value in intangibles, and technological change—embodied by big data, mobile, and the cloud—is a major component for companies to consider. This acceleration of value of intangibles is being driven by the sweeping change of digital transformation across all industries and is forcing companies to reevaluate everything, including:

• the way products are designed, produced, and delivered
• internal operations and organization
• IT infrastructure and processes
• (most significantly) customer relationships

The variety of benefits that come from cloud solutions make it a major intangible asset to any business. the cloud services are readily available as OpEx expenses, saving you money and offering flexibility to purchase, implement, and profit from those services with little to no downtime or risk.
CapEx stability or OpEx flexibility:
The primary benefit of the CapEx model is stability because you know exactly what the costs are on an annual basis. But that cost comes with unpredictable results attached to it. Your initial cost and how it will depreciate or be amortized over time is a certainty, but the true value of that investment to your company every subsequent year is not determined yet.
Here are some risks which you take when you take a CapEx approach to IT spending:

• Buying capacity which is not required today but purchased to meet tomorrow’s uncertainties. In the IT world, technology is constantly changing. An upfront push into establishing your own cloud might seem like an investment, but what if the equipment and skills of the workforce you invest in become irrelevant before there is a return on your investment.
• The longer it takes to set up an item or infrastructure implies more money you lose. So, taking a very long time to adopt a new capacity, usually through a difficult process will result in late returns.
• Entering vendor contracts that create business dependencies you can’t break as you will be held hostage by those contracts. And left high and dry if the vendor doesn’t follow through.

The OpEx model, on the other hand, provides flexibility and addresses all these needs:

• Since the OpEx services are provided instantly and on-demand, the lead times for deploying new and improved products shorten to days and hours, versus years and months, which again increases profits.
• If architecture or service turns out to be misconfigured or misfit, you can easily & quickly reconfigure it and there is minimal amount wasted.
• The OpEx approach to IT expenditure gives modern businesses the agility and flexibility they require to stay relevant in these constantly changing markets and meet their clients’ needs more appropriately and quickly. Better product & service delivery means higher profits for your company.

this is part 2
https://dev.to/nawras_lateef/is-cloud-aws-computing-actually-cheap-part-2-5e8k

RESOURCES:

• https://www.archive360.com/blog/revisited-capex-versus-opex-on-premises-versus-the-cloud
• https://www.geeksforgeeks.org/capex-vs-opex-in-cloud-computing/
• https://www.technologydecisions.com.au/content/cloud-and-virtualisation/sponsored/moving-monitoring-costs-to-opex-instead-of-capex-doesn-t-just-improve-the-bottom-line-1212903430
• https://www.investopedia.com/terms/c/capitalexpenditure.asp
• https://www.bmc.com/blogs/capex-vs-opex/
• https://www.semanticconsultancy.com/cloud-computing-the-costs-capex-vs-opex
• https://www.investopedia.com/ask/answers/112814/whats-difference-between-capital-expenditures-capex-and-operational-expenditures-opex.asp#toc-capital-expenditures-capex
• https://www.projectmanagement.com/discussions/discussionsTopicContainer.cfm?ID=62049&thisPageURL=/discussion-topic/62049/Study-for-Capex---Opex-management-for-IT-projects#_=_
• https://k21academy.com/microsoft-azure/az-900/az-900-microsoft-azure-fundamentals-cloud-computing-capex-vs-opex-model/