1. GATEWAY GROUP WHITE PAPER
WWW.GATEWAYTECHNOLABS.COM
Secret Sauce –
Transform IT from Capital Expenditure (CAPEX) To Operating Expenditure (OPEX)
WHITE PAPER
MOVE TO A VIRTUAL WORLD STRATEGY
2. GATEWAY GROUP WHITE PAPER
EXPERTS AT KEEPING EXPENSIVE BUSINESS DECISIONS
'PROFITABLE'. SINCE 1997.
BACKGROUND AND CHALLENGES
The topic is quite well written and rehearsed and implemented globally with advent of multiple players
in cloud arena. The customer still is in a limbo most of times. Traditional business principles die hard and
hence they are not able to think around a fact that sometimes the best strategy is to not grow. Ironical,
as it may be but it applies well in today’s IT scenario specifically concerning IT infrastructure.
The challenge that the market players pose is over complication of what is seemingly simple proposition.
IT infrastructure needs to be seen as something that you consume and not derive value from for years.
The customer has to decide if this is a good strategy or not.
SITUATION
Most of bootstrapped startups will agree on adopting the OPEX strategy because of multiple
constraints in form of available funds and pressures of delivering results at the speed faster
than other market players. If you are well funded, CAPEX may be valuable to you as it gives you
more resources and competitive differentiation. Also, depending on how your investment is
structured, some of those costs may provide tax benefits.
This particular decision of CAPEX V/S OPEX is very relevant for situations where demands are
fluctuating, your business is on a growth path and you are leveraging all the possible tools
available online to enable several functions within your business.
UNDERSTANDING THE ISSUES
Let us put a perspective around the parameters that affect such a decision:
1. Forecasting
2. Cost per unit of consumption
3. Usage patterns
In OPEX terms the total cost of operations is more relevant than total cost of ownership. When
companies think of spending around IT they need to access what proportion of the total
portfolio of corporate applications are appropriate for external cloud hosting, and what
decision criteria should be used to make that assessment.
3. GATEWAY GROUP WHITE PAPER
EXPERTS AT KEEPING EXPENSIVE BUSINESS DECISIONS
'PROFITABLE'. SINCE 1997.
SUCCESS FACTORS
The major factor affecting moving to OPEX model is how dynamic is your business. Coupled with
dynamic trend in technology shifts, this makes your decision move towards more “spend, see results,
grow, adjust” model. This is where the businesses or corporates shift their responsibility of delivery of IT
to the companies offering cloud platform or infrastructure.
When companies decide to move their IT infrastructure to the cloud, additional benefits are
immediately felt. The company no longer needs to dedicate the same resources, time and space for the
hardware and software. Many processes are automated and standardized, improving efficiencies.
Services, features and options can be purchased as needed and used on demand, so companies aren’t
paying for underutilized components.
Before you move into an OPEX model, choice of service provider/s should be made based on detailed
analysis of various parameters.
Detailed overview of various factors to consider before moving to OPEX model:
1. Pricing Plan
2. Average Monthly Price
3. Service Level Agreement (SLA)
4. Number Of Datacenters
5. Certifications
6. Scale Up
7. Scale Out
8. Support
9. Monitoring
10. APIs
11. Supported Operating Systems
12. Number Of Instance Types
13. Cost Of Outbound Data Transfer
14. Cost of Inbound Data Transfer
4. GATEWAY GROUP WHITE PAPER
EXPERTS AT KEEPING EXPENSIVE BUSINESS DECISIONS
'PROFITABLE'. SINCE 1997.
GATEWAY TECHNOLABS PROPOSITION
TRENDS AND POSSIBILITIES
The decision of shifting to cloud is synonymous to a smart move involving the buyer shifting the
responsibility for actual results to the provider. When the responsibility of results shift, the
buyer pays as he consumes, reduces or eliminates the need for any capital equipment
(expenditure) and has shorter-term commitments. The model offered by many cloud providers
has failed and will continue failing till a perfect model is found by providers. Till then the
customer will exercise its newfound agility by swiftly moving to a new provider.
Finally, the CFO and CTO will have to find common ground on what technology is needed,
where the money will come from and how it will be allocated.
