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Home Forums AWS AWS Certified Cloud Practitioner How is expense shifted when moving from traditional servers to the Cloud? Reply To: How is expense shifted when moving from traditional servers to the Cloud?

  • Nikee-TutorialsDojo

    Administrator
    July 8, 2024 at 9:49 am

    Hello Deepak,

    Thank you for your question. Understanding the terminology and the financial implications of transitioning from traditional infrastructure to cloud computing can be confusing. Let me clarify the difference:

    • Capital expense (CAPEX): These are substantial, upfront investments in physical assets such as hardware, servers, and data centers, which are long-term costs.
    • Operational expense (OPEX): These are the ongoing costs for running a business, such as rent, utilities, and salaries. These expenses are incurred regularly and are typically predictable.

    When moving to the cloud, businesses no longer need to invest large upfront physical infrastructure investments (CAPEX). Instead, they pay for cloud services on a pay-as-you-go basis, which makes these expenses more variable and flexible, depending on usage. This shift means that what used to be a fixed, upfront capital expense becomes a variable expense based on actual consumption.

    While it is true that cloud computing shifts costs from CAPEX to OPEX, it is more accurate to say that fixed capital expenses are traded for variable expenses because cloud costs fluctuate with usage. This emphasis on variability is crucial in understanding cloud economics.

    The option that says: Capital expense is traded for operational expense is incorrect because capital expense is not directly traded for operational expense. Operational expenses still exist in the cloud model, but the critical change is shifting from fixed to variable costs.

    For more reading, you can visit here.

    I hope this clarifies the concepts for you! If you have any further questions, feel free to ask.

    Regards,

    Nikee @ Tutorials Dojo