Cloud has become commonplace, and you understand that well when you look at all the technological advantages. But financially, there are also great benefits to the cloud!
With the cloud, you basically move the business from owning to renting; this applies to both hardware and software. But at the same time as you move the servers out of the basement and the IT up into the cloud, you also move around the location of the IT costs in the budget - and there is good economy in that.
Very simply put in this context, CAPEX is the capital that a non-cloud-based company has tied up in, for example, servers and other hardware.
When you switch to the cloud, where you rent hardware in, for example, Microsoft's data centers, the IT costs change from being long-term investments in hardware that must be depreciated, to being periodic, eg monthly, subscription payments based on consumption. The cost changes from CAPEX to OPEX, and becomes an operating cost.
There are three overall advantages to the cloud being subscription-based and thus an operating cost:
1. The company does not have to tie up liquidity in hardware
With the cloud, the company does not have to invest in hardware, for example when starting up a new, large project, or because the existing need changes. Thus, there is no tied-up capital in hardware that must be depreciated over a number of years, eg 3 or 5 years (and where the hardware is most often obsolete before it is fully depreciated).
2. With a subscription-based pricing structure, you only pay for what you use
In the cloud, you pay continuously for the current consumption, and it is quick and easy to turn up and down the capacity. Capacity and needs can thus be fine-tuned and adjusted on an ongoing basis - instead of (as with on-premise) wasting money on paying for extra capacity, which is only used during peak periods.
3. The company becomes more flexible when capital is not tied up
Because the cloud does not involve large investments and start-up costs, the company avoids tying up capital in the long run. That capital can then be invested in other projects that create revenue and earnings.
All in all, the cloud means that IT is changing from being a capital cost to being an operating cost. This makes the company more flexible and able to act more freely - not only in relation to IT, but with a (financially) contagious effect in other areas.
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