the topic for our third episode is capital and operational expenditures what are the differences and which model is used in the cloud and why stay tuned a learning objective for the third episode is quite simple we will learn about capital and operational expenditure because expenditure is an action of spending your company funds and how your expenditure differs whenever you're purchasing servers from the cloud or for your on-premise environment let me start with capital expenditure first in short capex capex basically means buying your own infrastructure even though most companies move to the cloud this model is
very often seen even these days in capex if you would draw a diagram showing the cost of running your infrastructure over time you would see a very big spike at this start because in a typical company environment when you make a purchase like this you invest a lot of money you'll want to make sure that your investment is future proof so you will want to buy a bigger server so that it can fit more applications the future you will want to have more modern motherboards so it can be expanded in the future and all of
those costs drive the initial investment higher and higher but once the initial investment is made there's a very low maintenance cost moving forward because of course you will need to pay for the power for those servers for the networking for some hardware replacements and for some support stuff to maintain those servers up and running buying servers in this model means you buy a static capacity of the server but in real scenarios your application will use that capacity over time when they grow and grow or more applications come until they use the full capacity of the
server as you can imagine all the capacity until that happens is wasted additionally because you are managing your own infrastructure you'll have a lot of additional maintenance required while the maintenance cost is small you still will be required to hire some people to manage those then you will need to provide a stable power and networking source for your servers you will need to replace the hardware that fails and all the operational stuff that is required to manage your own infrastructure so a capital expenditure is about being able to commit to resources up front and make
that big initial investment in the operational expenditure model it's about renting infrastructure buying services and the cloud perfectly fixed into this model if we take the same example as previously so increasing usage over time if we would again draw the diagram of the cost of our infrastructure over time the diagram would look much different because we would be only paying for the what we use because our cost is solely based on the usage that means server capacity always matches what you are using and therefore there is no initial investment unless you are actually buying something
upfront and when it comes to maintenance in cloud most of the maintenance is actually performed by the cloud vendor you only need to maintain small operation teams to manage the most important tasks around your infrastructure other than that microsoft manages everything and this is included in the price when you're purchasing services to summarize let me compare the two first of all when it comes to capex you have significant upfront cost in terms of opex there's none when it comes to ongoing costs in capex there's low ongoing costs for maintaining your infrastructure in opex this is
solely based on your usage tax deduction is a tricky topic because it varies from country to country but in general the rule is that you can make deduction over time when it comes to opex since you're paying for operations every month you can make tax deduction in the same year when it comes to early termination this is one of the biggest advantages of operational models operational expenditure allows you to cancel servers at any time if you no longer need those application you simply cancel in capex well you own the server so you cannot cancel anything
you just waste more resources because the server is underused as we already mentioned maintenance in capital expenditure model is quite significant because you need to manage your own infrastructure if you're buying services in operational expenditure model you only need to maintain a very small operation teams and lastly when you talk about value over time because you're buying your own infrastructure as we all know hardware value over time lowers because in operational model you don't really own any hardware there's no change in value you simply can move to the newest hardware versions of the services at
any time with no additional cost and those are pretty much the most important differences in those two spending models for this episode again go to my website to episode 3 check out the study guide check out the cheat sheet and try what you have learned in this episode by going to the practice test and that's it for this episode thank you guys for watching if you like what i do support the channel by subscribing liking and commenting or sharing this to your friends if you want to see the next episode simply follow the playlist or
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