There are several advantages that a cloud environment has over a physical environment that Tailwind Traders can use following its migration to Azure.
High availability: Depending on the service-level agreement (SLA) that you choose, your cloud-based apps can provide a continuous user experience with no apparent downtime, even when things go wrong.
Scalability: Apps in the cloud can scale vertically and horizontally:
- Scale vertically to increase compute capacity by adding RAM or CPUs to a virtual machine.
- Scaling horizontally increases compute capacity by adding instances of resources, such as adding VMs to the configuration.
Elasticity: You can configure cloud-based apps to take advantage of autoscaling, so your apps always have the resources they need.
Agility: Deploy and configure cloud-based resources quickly as your app requirements change.
Geo-distribution: You can deploy apps and data to regional datacenters around the globe, thereby ensuring that your customers always have the best performance in their region.
Disaster recovery: By taking advantage of cloud-based backup services, data replication, and geo-distribution, you can deploy your apps with the confidence that comes from knowing that your data is safe in the event of disaster.
Capital expenses vs. operating expenses
There are two different types of expenses that you should consider:
- Capital Expenditure (CapEx) is the up-front spending of money on physical infrastructure, and then deducting that up-front expense over time. The up-front cost from CapEx has a value that reduces over time.
- Operational Expenditure (OpEx) is spending money on services or products now, and being billed for them now. You can deduct this expense in the same year you spend it. There is no up-front cost, as you pay for a service or product as you use it.
In other words, when Tailwind Traders owns its infrastructure, it buys equipment that goes onto its balance sheets as assets. Because a capital investment was made, accountants categorize this transaction as a CapEx. Over time, to account for the assets' limited useful lifespan, assets are depreciated or amortized.
Cloud services, on the other hand, are categorized as an OpEx, because of their consumption model. There's no asset for Tailwind Traders to amortize, and its cloud service provider (Azure) manages the costs that are associated with the purchase and lifespan of the physical equipment. As a result, OpEx has a direct impact on net profit, taxable income, and the associated expenses on the balance sheet.
To summarize, CapEx requires significant up-front financial costs, as well as ongoing maintenance and support expenditures. By contrast, OpEx is a consumption-based model, so Tailwind Traders is only responsible for the cost of the computing resources that it uses.
Cloud computing is a consumption-based model
Cloud service providers operate on a consumption-based model, which means that end users only pay for the resources that they use. Whatever they use is what they pay for.
A consumption-based model has many benefits, including:
- No upfront costs.
- No need to purchase and manage costly infrastructure that users might not use to its fullest.
- The ability to pay for additional resources when they are needed.
- The ability to stop paying for resources that are no longer needed.
Cloud service models
Let's compare the three models in more detail in the following sections.
IaaS
IaaS is the most flexible category of cloud services. It aims to give you complete control over the hardware that runs your application. Instead of buying hardware, with IaaS, you rent it.
Advantages
No CapEx. Users have no up-front costs.
Agility. Applications can be made accessible quickly, and deprovisioned whenever needed.
Management. The shared responsibility model applies; the user manages and maintains the services they have provisioned, and the cloud provider manages and maintains the cloud infrastructure.
Consumption-based model. Organizations pay only for what they use and operate under an Operational Expenditure (OpEx) model.
Skills. No deep technical skills are required to deploy, use, and gain the benefits of a public cloud. Organizations can use the skills and expertise of the cloud provider to ensure workloads are secure, safe, and highly available.
Cloud benefits. Organizations can use the skills and expertise of the cloud provider to ensure workloads are made secure and highly available.
Flexibility. IaaS is the most flexible cloud service because you have control to configure and manage the hardware running your application.
PaaS
PaaS provides the same benefits and considerations as IaaS, but there are some additional benefits to be aware of.
Advantages
No CapEx. Users have no up-front costs.
Agility. PaaS is more agile than IaaS, and users don't need to configure servers for running applications.
Consumption-based model. Users pay only for what they use, and operate under an OpEx model.
Skills. No deep technical skills are required to deploy, use, and gain the benefits of PaaS.
Cloud benefits. Users can take advantage of the skills and expertise of the cloud provider to ensure that their workloads are made secure and highly available. In addition, users can gain access to more cutting-edge development tools. They can then apply these tools across an application's lifecycle.
Productivity. Users can focus on application development only, because the cloud provider handles all platform management. Working with distributed teams as services is easier because the platform is accessed over the internet. You can make the platform available globally more easily.
Disadvantage
Platform limitations. There can be some limitations to a cloud platform that might affect how an application runs. When you're evaluating which PaaS platform is best suited for a workload, be sure to consider any limitations in this area.
SaaS
SaaS is software that's centrally hosted and managed for you and your users or customers. Usually one version of the application is used for all customers, and it's licensed through a monthly or annual subscription.
SaaS provides the same benefits as IaaS, but again there are some additional benefits to be aware of too.
Advantages
No CapEx. Users have no up-front costs.
Agility. Users can provide staff with access to the latest software quickly and easily.
Pay-as-you-go pricing model. Users pay for the software they use on a subscription model, typically monthly or yearly, regardless of how much they use the software.
Skills. No deep technical skills are required to deploy, use, and gain the benefits of SaaS.
Flexibility. Users can access the same application data from anywhere.
Disadvantage
Software limitations. There can be some limitations to a software application that might affect how users work. Because you're using as-is software, you don't have direct control of features. When you're evaluating which SaaS platform is best suited for a workload, be sure to consider any business needs and software limitations.
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