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Friday, March 26, 2010

Are You Looking at the Cloud through OpEx-Colored Glasses?

We repeatedly see stories attaching Cloud Computing to what is often cited as a single clear cut accounting advantage. "Cloud Computing enables companies to move the cost of computing from capital investments (CapEx) to operating expenditures (OpEx)."  This phrase is cited so often as a benefit to moving to the Cloud that it almost has become an automatic part of the litany. 

In simplest terms, the discussion comes down to one we all face at various times in our personal lives: is it more advantageous to lease (OpEx) or own (CapEx) something?  In business, it is more common -- and usually more advantageous -- to lease (office space, company cars, etc.). So, it is easy to draw the conclusion that the advantage of leasing computer capacity via Cloud Computing's managed services is a clear benefit. A data center requires up front purchases of servers, software licenses, networking equipment, etc., so the commitment of capital when compared to cloud computing's usage-based payment model can seem like an excessive burden. But is this really a CapEx vs. OpEx issue?

Geva Perry, author of the blog, "Thinking Out Cloud"  suggests we look closer. Perry cites three problems with the oft-cited accounting issue:
1.  First, it's not about OpEx or CapEx at all. Those who make the argument are really talking about cash flow -- do we spend now or over time?
2.  Perry states emphatically that there is absolutely no benefit in moving an expense from CapEx to OpEx, and
3.  The blog adds that the long term cost of renting anything -- hardware, software, server, networking equipment, Volkswagen or condo --  is going to cost more over time than purchasing the same item.

Perry goes on to say that there are many inherent benefits to Cloud Computing that should be considered, but warns us to avoid the automatic accounting assumption because the language describing it is misleading. When looked at as an issue of cash flow, the decision is far less automatic for a business and requires a more careful analysis of the specific needs and situation of an organization.

What do you think?

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