Editor ’ s Note This is the first article in a multi-part series exploring the financial impacts of enterprise cloud adoption .
Every company has its own ideas on how best to determine cloud ROI . For many , it ’ s capital expenses ( CapEx ) versus operational expenses ( OpEx ). Cloud computing shifts IT spending to a pay-as-you-go model , like utility billing ; you only pay for what you use , when you use it . For startups or new applications , this well-established argument is sound . Why purchase hardware , data center space , power and supporting software when they can be rented by the hour at a higher utilization rate ? For enterprises , however , the decision is not so simple .
Enterprises have invested in data centers and equipment that is already bolted into racks and partially depreciated . For these organizations , identifying and making the right economic decisions requires additional investigation into the detailed costs and benefits of enterprise cloud .
Thinking Beyond CapEx vs . OpEx
Most enterprises have hardware utilization rates significantly below 20 % because of the excess capacity required to handle peak demand . As such , many companies carry up to 5 times the required hardware , networking , and data center space during steady state business cycles . If their computing demand is spiky , utilization rates outside of peak cycles are commonly below 10 %. As a result , enterprises are spending much more on compute and storage than is required . Figure 1 depicts the traditional model where cloud shifts fixed CapEx expenses to variable OpEx expenses . To understand the full value of cloud for your enterprise , you must look beyond the CapEx vs . OpEx benefits and assess the other value drivers at play .
The Traditional View - CapEx vs . OpEx
Figure 1 shows the challenges of the traditional model . The blue line depicts hardware purchases which are completed periodically to increase capacity ahead of projected utilization . The red arrows indicate the cost an enterprise bears in excess capacity while the red shaded area represents the danger of underestimating utilization .
44 | THE DOPPLER | SPRING 2016