The Cloud Changes the Cost Landscape

Compare and contrast CapEx and OpEx models and learn what financial advantage the cloud brings.

Capital assets

Once upon a time, to use computing resources, you had to own them physically. We had to buy expensive mainframes, minicomputers, or servers and keep them safe and sound in a data center with a raised floor, countless cables, and cooling and fire suppression systems. Because this equipment was expensive, sometimes millions of dollars, we treated it just like any piece of machinery we needed to buy to produce our products.

Because these were big investments, we expected to be able to use them for years and years. In accounting terms, we call this type of thing a fixed asset. It just kind of sits there, fixed, and does its job over the course of several years—something referred to as a useful life. That useful life is usually determined by an amortization schedule, which is another accounting term allowing companies to steadily decrease the book value of that fixed asset as it gets older and presumably less useful to the business.

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