Traditional collaboration purchases, whether they be voice PBXs, video conferencing systems and infrastructure, or even just meeting rooms supported by digital displays, have always been a capital investment. The enterprise must figure out its needs for the next three- or five-year period, do the technology research, make a choice, and spend the money to bring that equipment in-house. And that’s just the beginning of the challenges.
In the brave new world of cloud-based collaboration, the enterprise can instead consider collaboration to be much more of a service purchase. Cloud communications services offer collaboration based on seats or virtual meeting rooms and provide these capabilities through Internet connections. An enterprise can turn services on quickly, scale them up or down to meet demand, and turn them off again if the needs change.
This service investment is an operational expenditure (OpEx), paid through the enterprise operational budget rather than via the traditional capital expenditure (CapEx) approach associated with on-premises systems. OpEx money doesn’t require as many levels of management for approval and is much more directly tied to the business and thus the business needs. The service cost scales up and down, allowing it to match the available cash flow of the user business as well.
CapEx and OpEx are treated differently from a tax perspective, which may impact how each enterprise thinks about those expenditures. Some companies are comfortable with an up-front CapEx that it then amortizes over the life of the technology. Other companies like to avoid those up-front commitments and would rather handle the cost of the technology on an operational basis that matches its consumption by the business. If your company is cash-poor and trying to pay down debt, the CFO may push toward an OpEx model to help manage the cash flow. Conversely, if cash isn’t a challenge, the CapEx payment may have a lower total cost of ownership (TCO), saving the company money in the long run.
Keeping assets off the books is another motivation for using an OpEx approach. Regulators or market analysis are often judging companies based on income-to-assets or debt-to-asset ratios. Not owning the equipment can help push the company’s perceived finances in the right direction.
But what about the technology risk? One of the big advantages of a cloud service, or any service offering that puts the vendor on the hook to make it work, is that the enterprise is relieved of the challenge of keeping that technology alive and well. The service now much better aligns with the internal use of the solution for information workers. Assuming competency, the vendor’s technology risk of running the collaboration solution is much lower than it would be for the enterprise, as it is a daily focus. The vendor would be operating its service or parallel services for many customers, and thus have experts it can leverage to keep the solutions working smoothly. For the enterprise, this technology is one of many different solutions to keep running, and experts have to be jacks of all trades, hopping from solution to solution to keep the applications running and the daily business alive and well. It’s difficult for these folks to have the same level of expertise or connection as the solution provider.
It’s all good right? Well of course we have to give up something in return. The move to OpEx and external services means moving toward more standardized solutions. This means fitting the enterprise’s business flows into a tool that doesn’t necessarily fit as well as a custom solution could. And not owning the asset may mean that the long-term TCO is not as good as the old CapEx version. If your company is the kind that runs equipment until the wheels are falling off, getting the most possible out of the initial investment, then you can expect to pay more over time for the privilege of using an external service.
For a deeper dive on the CapEx-OpEx tradeoffs, be sure to join me at Enterprise Connect on Wednesday, March 20, from 4:00 to 4:45 p.m. for my session, “Moving From a CapEx to an OpEx Model for UC Collaboration.”
If you haven’t yet registered for Enterprise Connect, coming to Orlando, Fla., the week of March 18, do so now to take advantage of our Early Bird Rate. Plus, as a No Jitter reader, you can use the code NJPOSTS at checkout to save an extra $200 off your pass.
