On-premise IT vs the cloud: what’s best for your business?

Phil Muncaster

Wednesday 16 March 2016

When it comes to the CapEx versus OpEx debate, organisations need to carefully consider whether they are only moving to the cloud in order to save costs, or if there are other drivers.

In the current economic climate, organisations are increasingly reluctant to make large upfront capital investments in IT. And you can’t get more CapEx than an on-premise data centre. This has made the operational expenditure (OpEx) model of cloud computing much more attractive: let someone else manage the financial burden. Except that it’s not necessarily cheaper. There are several hidden costs associated with the cloud which may cause CIOs to take a step back and review their options. To begin with, organisations need to carefully consider whether they are only moving to the cloud in order to save costs, or if there are other drivers. They should be aware that, if outsourcing is a cost-saving exercise alone, the project is more likely to fail.

Substantial outlay for on-premise IT

The CapEx versus OpEx comparison is one that will be familiar to most IT leaders. And nowhere does it seem better exemplified than in the debating the pros and cons of investing in an on-premise data centre versus outsourcing to a cloud computing provider. We’ve already touched upon some fo the caveats regarding the cloud option. But things are not quite as black and white as they seem. If CIOs decide to go in-house, they won’t simply be required to stump up a large amount of money for the initial capital investment, but will also be burdened with ongoing operating expenses. And it is these that can really take their toll.

Consider the upfront investments first of all. You’ll need to pay for network switches, storage, servers, and all the other IT kit that goes inside a data centre. Then there are the cooling systems needed to keep hardware from overheating; and back-up generators to ensure up-time even during blackouts. Add to this software licenses, and it’s starting to look like a pretty serious investment. But wait. What about the cost of the land itself? And the staff you’ll need to fix, patch and otherwise manage all that IT?

Once that’s all up and running there are the ongoing operating expenses of power – much of which will go on that 24/7 air conditioning – staff wages, software license renewals, bandwidth, and potentially legal costs to manage all these agreements with your various suppliers.

Hidden costs of the cloud

Faced with all that, it’s not surprising why so many businesses opt to outsource to a third party cloud provider. After all, it eliminates that huge initial CapEx and then makes the ongoing OpEx far more manageable, predictable and usually cheaper – as the provider can take advantage of economies of scale to offer more competitive rates.

However, CIOs need to consider their options and scrutinize contracts carefully. Remember – if you change your mind once you’ve signed on the dotted line it’s going to cost you. Look at the issue strategically. What’s your primary reason for outsourcing? If your provider puts up their prices it could seriously affect your budgeting. That’s not to mention hidden costs such as those associated with backup and recovery, low storage utilisation and compliance.

The bottom line is it’s not all about OpEx versus CapEx. Yes, this should be an important part of the decision making process, but the type of service you require must also play a part. How secure does it need to be? How customizable do you want it? What about scalability? It’s much more than just a question of cost.