How business can avoid unnecessary capital expenditure with the cloud

A Gartner study has found out that businesses are increasingly moving away from establishing in-house infrastructure, which includes hardware assets and software. Businesses are doing this in order to avoid spending for the dreaded capital expenditure. Instead, enterprises are increasingly going for a service-based model, in which assets are paid for on an expenditure basis, instead of being bought outright.

Cloud-based services are making all these possible. Even companies that are traditionally known for offering on-premises based products are acknowledging that cloud is the future of business. Microsoft CEO Steve Ballmer said that the company is “all in” for the cloud, and that about 90% of current developments are geared toward cloud computing.

Avoiding CapEx is one of the main benefits of the cloud. Instead of bulking up expenditures at the start, acquiring applications on a service-based model lets businesses pay on a per-use basis. Here are a few ways a businesses can focus their resources on operating expenditure instead of CapEx through the cloud.

Reduce Hardware Costs. Traditional on-premises infrastructure would necessitate the purchase of servers and the rental of server or co-located space. This would usually entail a heavy up-front cost. Cloud computing lets businesses pay for assets on a rent basis, which means expenditure is moved to operations rather than capital.

Tax Savings. As a result of the reduced upfront costs, businesses can save on their tax expenditures by charging for cloud-based assets and services as regular monthly expenditures rather than a single purchase. This is just like being able to charge leased assets (like building space, automobiles) against tax deductibles. With cloud computing, payments to service providers are treated as business expenses and not assets.

Pay-per-use. Another big advantage of cloud computing is that businesses only pay for what is actually used. Processing cycles and bandwidth that are unused will not be charged. This is a big difference from buying a server and paying for server space and bandwidth outright. With cloud computing, the organization only pays for actual services, bandwidth and processing cycles used, depending on the service agreement.

Cloud computing provides the most benefit for small and medium businesses, because of scalability. Organizations without the ability to shell out big amounts in capital expenditure can still compete with more established businesses, because of the service-based business model that cloud providers charge. Big organizations, meanwhile, can reduce CapEx and instead convert these into operating expenditure, and likewise realize cost-savings in the long run.