Traditionally, companies have purchased their data storage resources via capital expenditures (CapEx). Now, with the advent of cloud-based Storage as a Service (STasS) providers, acquiring storage services as an operating expense (OpEx) has become a viable option. Read on to see why you should be leaving CapEx storage behind for good.
When capital funds are used to acquire equipment, the purchase price is paid up front and the company owns that asset. On the other hand, many enterprises have begun to forgo actually owning their storage infrastructure, and simply purchase storage services from a STaaS vendor for a monthly fee. That’s the OpEx model. But which approach works better?
Often CIOs or IT managers have decided between the CapEx and OpEx approaches to providing for their storage needs by the simple method of spreading the purchase cost of an asset over its expected service life, and then comparing that figure to the monthly fee a cloud services provider would charge for the same amount of storage. But that method can seriously understate the real costs of capital spending for storage because it overlooks the significant costs involved in operating, maintaining, and supporting company-owned equipment.
In this article, we’ll take a look at the factors that should be included in any calculation of the true costs of purchasing storage hardware and software through capital expenditures.
Advantages of Using CapEx To Procure Storage
There are several reasons many CIOs favor acquiring storage through capital expenditures. The first, perhaps, is its simplicity. The process of budgeting for and purchasing capital equipment is familiar and well understood. That means uncertainties, delays, and potential missteps in the procurement process are minimized.
Storage hardware and software, including extra capacity that will be held in reserve to accommodate unexpected surges in demand, is usually purchased in bulk, often at the beginning of a company’s financial year. The costs of those assets can then be depreciated or amortized over the expected life of the equipment, providing tax benefits in subsequent years. An additional advantage of the CapEx approach is that purchasing storage equipment in quantity allows a company to negotiate the most favorable prices and terms with vendors.
The Hidden Costs of CapEx Procurement
In calculating the cost comparison between the CapEx and OpEx approaches, managers sometimes fall into the trap of proceeding as if the price they initially pay for that equipment is an approximation of their total costs over time. What they forget is that the moment they click the ON switch for that new server or storage array, operating expenses begin piling up. That list of expenses can get pretty long. Here are some of them:
- Space to house servers, storage arrays, and the network facilities that form the backbone of the infrastructure
- Backup power supplies required to ensure that power outages don’t disrupt operations
- Costs associated with keeping unused servers and storage arrays on hand so as to always have extra capacity available to handle unanticipated increases in demand
- Recurring costs for maintenance agreements and for software licenses
- Costs of IT staff and management required to keep the storage infrastructure running and upgraded as necessary
Although most managers realize that there will necessarily be operating costs associated with the purchase of capital equipment, many underestimate just how significant those costs can be. In fact, according to Parity Research, operating expenses account for more than 80 percent of the total cost of ownership (TCO) for a typical storage system employing hard disk drive (HDD) arrays.
In addition to a significantly lower TCO, the OpEx approach to storage procurement provides other benefits as well. For example, when an organization uses capital funding to purchase storage equipment, it pays the total cost of those assets up front.
With advances in storage technology occurring at an ever-accelerating pace, significant amounts of that already paid for hardware, the portion held in reserve to provide additional capacity when needed, may never even be used before it becomes obsolete. But with the OpEx model, capacity is added – and paid for – only when it is actually required. There are no unused drive arrays sitting in the company’s data center essentially wasting hard to come by capital funding.
With CapEx storage spending, you often just see the tip of the iceberg and are unaware of the many hidden costs associated with it.
The OpEx Advantage
With the OpEx approach to storage provisioning, there are no capital expenditures and most operating expenses are rolled into the storage provider’s monthly service fee. The UC Berkeley Reliable Adaptive Distributed Systems Laboratory estimates that replacing CapEx storage spending with OpEx through the use of a cloud storage services provider lowers overall costs by 75 to 80 percent.
For many companies, moving from CapEx to OpEx for acquiring the storage they need represents a significant departure from their traditional practice. But, by the numbers, it’s a step that could be well worth their while to consider. If you’re interested in assessing what a shift to OpEx-based cloud storage could do for your company, we’d like to help. Please download the ‘Zadara Storage Cloud’ whitepaper.