Cloud Expo on Ulitzer

Brenda Michelson, Principal of Elemental Links, writes "elemental cloud computing" recently tweeted: "100k buys way more public, than private, cloud computing power" which started a short but inspiring conversation on the subject centering around the observation that "cloud is the gift that keeps on giving." That's alluding to the fact that the compute power purchased in "the cloud" is an annual expense, unlike private, cloud computing power which requires renewal at longer intervals, usually in the 3-5 year range.

Still, Brenda is right at least in the short term. $100,000 purchases a lot more compute power in a public cloud computing environment than it will/would/does in a private cloud computing environment. The problem is that $100,000 in a private cloud computing environment is likely to provide more business value than would a comparable investment in a public cloud computing environment. And that's really the metric we should be using instead of CAPEX versus OPEX.

THIS IS NOT ABOUT CAPEX vs OPEX

I have read, and re-read, and read some more on the whole "CAPEX vs OPEX" arguments both for and against public cloud computing. I started off by reading JP Morgenthal's "A Better Metric for Analyzing the Value of the Cloud". But that led me to digging deeper as it became apparent that my decision to focus on computer science in graduate school rather than economics and accounting was getting the way of understanding the real debate regarding CAPEX vs OPEX. Bernard Golden, CEO of consulting firm HyperStratus, nearly convinced me that public cloud computing is the only financially responsible option in "Capex vs Opex: Most Miss Point About Cloud Economics". Stratetect argued basically the opposite in "CAPEX vs OPEX. What is the difference?" and thus sent me into a rousing debate with myself (I'm still unsure who won that one). I finished up with a quick read of "CapEx, OpEx and Cloudy Accounting" over at Data Center Knowledge because, well, I'm masochistic, apparently.

I finally came to a few conclusions:

• I can explain to you why some CAPEX spending can actually lead to a decrease in overall CAPEX spending but not whether it's desirable to do so. For example, an investment in an application delivery controller can result in higher VM density capabilities per physical server, the result of which is less CAPEX required to purchase physical servers to meet annual growth (and a reduction in the associated OPEX, I might add). Whether this reduction in CAPEX is good or bad seems to be somewhat of a subjective opinion and one I am apparently not well-versed enough in accounting to make.
• Investing in public cloud computing increases OPEX (cost of services) while simultaneously decreasing OPEX (offloads maintenance/management of physical servers, decreases costs associated with datacenter space). Whether the increase is good/bad/desirable is also somewhat of a subjective opinion and open to interpretation. I guess the trick is to try to make sure the decrease in OPEX is greater than the increase, thus resulting in an overall decrease. Bernard Golden insists part of the appeal of public cloud computing is in the ability to just "stop using resources" because it isn't a fixed cost. I disagree that it isn't a fixed cost; it's rare you're suddenly going to not need compute resources, but his argument has merit as a reason why increases in OPEX are more easily dismissed as an argument against public cloud computing.
  
• There's no good answer to the CAPEX vs OPEX debate. CEOs, CIOs, CTOs, and financial folks all seem to disagree when it comes to cloud computing and costs. In fact I'm wondering at this point whether cloud computing and its impact on the balance sheet might force a change in the equations financial analysts use to value companies. If it's not as simple as "high OPEX bad and more CAPEX good" then perhaps the "economics" of cloud computing will have broader implications than just for technology, IT, and organizations. But for IT and technology-focused individuals rather than focusing on whether one approach is desirable over another we should - or at least I should - probably just stick to explaining how a given solution decreases/increases CAPEX/OPEX and leave the analysis to someone better suited to the task.

Ultimately I think there's no good answer that can come - at least authoritatively - from an outside source. The only person suited to answering the question of whether increasing OPEX by leveraging cloud computing or investing in the CAPEX necessary to leverage private cloud computing is the one sitting in the CTO/CIO chair. Then I reached another conclusion: we're ignoring the very basic question of the business-value offered by each approach. Focusing in on CAPEX or OPEX or X-EX is not nearly as germane as asking "What's the business value an organization is getting when they write that $100,000 check?"