Updated: Jan 18, 2022
To better understand the financial aspects of the cloud, there are two main terms we need to know. These are CapEx (Capital Expense) and OpEx (Operating Expense).
The organization is making an upfront investment for future profit/use. For Example, to lunch a web service to its customers, the business will invest in IT departments, Physical servers, etc.
This approach is most relevant to Traditional IT, where significant investments are made at the beginning of the project (Building data center, purchasing software licenses, purchasing storage, air conditioning, and more) and only then after doing all this work and spending all that money, we can finally start using it.
The organization is paying only for what it uses. For Example, we can use only two servers to lunch our website and add more hardware based on actual needs, which means that we only pay for what is needed and based on business needs.
So to summarize, these are CapEx Vs. OpEx,
CapEx is not flexible and primarily relevant to traditional IT, and OpEx, on the other hand, is highly elastic and the most optimal approach used in the cloud environment, which makes the cloud by far more financially efficient for the business.