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CAPEX vs OPEX

With COVID-19 rapidly accelerating the pace of digital transformation last year, many organisations were forced to invest in data storage infrastructure. However, these businesses often face the dilemma of whether to opt for a solution that is acquired as a Capital Expense (CAPEX) or Operating Expense (OPEX).

Hayden Sadler.

CAPEX is generally used to fund major investments and is shown on a company’s balance sheet. Essentially, capital is exchanged for an asset, which can then be amortised and depreciated over its lifespan, and can add value to the business.

OPEX on the other hand is generally used for ongoing expenses and organisations are increasingly leaning towards this model to fund solutions. This is largely due to the economic turmoil created by the COVID-19 pandemic and is set to continue for some time, with the result that companies will continue to be short of cash for long periods of time.

Conversely, if a company wants to save money in the long term, it may opt for the CAPEX model. This means making a bigger payment upfront, but ultimately saving money by not having to pay premiums that include interest on a loan over the lifespan of the asset.

Finding the sweet spot

Both approaches have merit, but there is a sweet spot in the middle. Too often, organisations are forced to choose between one or the other and we’ve seen companies make drastic changes to their financing options just to remain agile. They often end up procuring a more expensive solution simply because they didn’t opt for a better consumption model.

Now more than ever, organisations should be looking for a data storage provider that not only affords them the choice between CAPEX and OPEX, but also the opportunity to change between these models as they see fit.

The right vendor will proactively offer both finance models with built-in price disruption, enabling businesses to be more agile. This is a departure from the traditional approach, which dictates that in order to have both CAPEX and OPEX models, organisations would have to acquire two separate storage systems.

Yet, having to manage two systems is often twice as hard as managing one. Elastic pricing disrupts this model by enabling companies to purchase a single data storage solution and pay for a portion of the capacity using OPEX and the rest using CAPEX. In addition, customers who change their mind can switch between the two as and when they need.

Providing agility, lessening risk

The economy has changed dramatically and this approach is particularly useful under current conditions. For example, when an organisation launches a service there is a risk that it could either take off or fail. It would be better to start the project with infrastructure that is not committed upfront with CAPEX, but rather with an OPEX model that provides agility and lowers risk.

However, as the project grows and takes off, the company can revert to the vendor and request to switch from OPEX to CAPEX. So, while the once-off CAPEX payment will be significantly higher than the monthly OPEX payments, the overall pricing for the required capacity will be lower in the long run. Furthermore, the infrastructure can be used for a number of years and is fully paid for. In this way, they could save a lot of money down the line by switching.

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