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To better understand the financial aspect of using the cloud, there are two terms we need to know.

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These are CapEx and OpEx.

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These terms stand for capital expense and operating expense.

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Now, what does it mean?

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Capital expense or capex means that we are making upfront investment for future use or profit.

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For example, as we discussed before, we bought the fossil fuels, we paid for them upfront and then

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we just use them.

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OpEx on the other side is paying for what you actually use.

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Now, what's important to understand is that traditionally it is capex oriented, that means that we

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have major investment for building data center producing servers, purchasing air conditioning, producing

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the network devices and, of course, purchasing software licenses.

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And only then after doing all that and spending all that money, we can finally use it now, even though

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traditional it is capex oriented.

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There are also some OpEx involved.

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For example, electricity is usually paid by the month salaries.

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Of course, we pay I.T. guys every month.

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Maintenance is also an ongoing payment and more so in traditional I.T. We have mainly capex, but also

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a lot of OpEx.

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Now, if you will go back to our example, then we have those four servers now, those four servers

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are CapEx.

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We bought them at the beginning of the year.

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We paid for them once at the beginning of the year, and we just let them run not quite efficiently,

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as we saw with OpEx.

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On the other hand, what's going to happen is this.

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We first buy two servers and then we let them run throughout the year until again, we reach November

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or November.

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We add two servers, then we come prepared for Black Friday, and after that we can decrease again the

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number of servers back to two.

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And so we pay for the additional two servers only on November.

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So to summarize, these are CapEx and OpEx.

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CapEx is not optimal and not flexible.

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And OpEx, on the other hand, is extremely flexible and the most optimal method we want to use and

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this is what we get with the cloud.

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The cloud enables us to make all our investment in OpEx, which makes it much more financially efficient.