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As its name suggests, the hybrid cloud is a computing environment where two different cloud solutions (one public and one private) are used together to allow you to benefit from both types of cloud computing. However, when you move from a hybrid to the full cloud solution, you can write off costs that you can’t with a hybrid cloud.
Microsoft summarizes hybrid cloud this way: “When computing and processing demand fluctuates, hybrid cloud computing gives businesses the ability to seamlessly scale their on-premises infrastructure up to the public cloud to handle any overflow — without giving third-party data centers access to the entirety of their data. Organizations gain the flexibility and computing power of the public cloud for basic and non-sensitive computing tasks while keeping business-critical applications and data on-premises, safely behind a company firewall.”
This is true… However, using a hybrid cloud isn’t without some drawbacks including costs.
When paying for a hybrid cloud, you are paying via a capital expense (CapEx) that you depreciate over time. With a full cloud, you are essentially leasing all of your services so this is considered an operating expenditure (OpEx).
It can be more expensive to use a full cloud solution in the long run than it is to use a hybrid cloud, but you won’t have to outlay capital upfront, it scales quickly, you’ll have ubiquitous access and won’t need to worry about upgrades because the cloud provider takes care of this for you.
For this reason, many companies are shifting from hardware and software ownership with a hybrid cloud to a full cloud model.
CapEx is the upfront investment to buy a fixed asset (hybrid), and OpEx (full cloud) is the ongoing spending to keep the fixed asset running. For an expenditure to be considered as CapEx, you have to own the asset, which you do with the private/hybrid cloud solution.
CapEx (Hybrid Cloud) is the money you spend on a fixed asset, including upgrades and maintenance. A CapEx is meant to benefit your organization for more than one year. For example, things you might purchase in the IT world include hardware, servers, business phones, printers, Universal Power Supplies, and more. These costs can be depreciated or amortized over several years according to the tax code.
CapEx spending has its pros and cons. If an IT asset’s useful life extends beyond one year, the cost can be expensed from 5 to 10 years (although with the fast-evolving technologies these days, you’d probably switch them out in 3 years).
The other drawback with this is that the money you shell out for the purchase means less cash flow for your business which can negatively affect it in the short term.
OpEx (The Full Cloud) are for your day-to-day operational expenses. These are typically used up within a year. This would include things like expenses for paper, printer cartridges, and other office supplies. Contract items such as yearly service or maintenance are also considered operational expenses. Think of these as pay-as-you-go items (like a full cloud would be).
Unlike the depreciation with capital expenditures, operational expenditures are entirely tax deductible in the year they are incurred. Think of it this way… They are deducted against your income right away, and the less income you show on your tax statements, the less you pay in taxes. Are you starting to see the benefit for the full cloud in this respect?
Having the choice between CapEx and OpEx for acquiring IT equipment and solutions isn’t anything new. The difference comes with the new cloud hosting capabilities. Using OpEx (full cloud) procurement to obtain services is easier today than it’s ever been before. Thanks to the advent of the Cloud, using software and IT services is a lot easier than it was in years past.
Still, the CapEx vs OpEx argument isn’t everything companies worry about when it comes to choosing a hybrid or full cloud solution. Ultimately, it’s best to consult with your IT service provider who can sit down with your leadership and go over the pros and cons of each.
In the meantime, if you found this article helpful, we’ve provided others on our Blog that you should find interesting.
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