Let’s go with the most straightforward definitions:
Outside the cloud – companies that have their data center or colocation facility and purchase hardware.
Inside the cloud – companies that have adopted the public cloud, e.g., AWS, Azure, GCP, etc.
Suppose you are operating “outside” the cloud. There are a few legitimate reasons for operating outside of the cloud. For example, the technology you require is not available in the cloud, you are exceptionally good at managing your environment with outstanding efficiency, or you have just made a significant investment in hardware and need to carry the depreciation for the next few years. Although more and more technology is being “cloudified,” many technologies are adapted or called a cloud, e.g., mainframe or AS400. Some providers do provide “cloud-like” offerings for these services, and those may be worth investigating.
When purchasing hardware, the assumption is that companies are buying the best hardware they can acquire at the time. Based on Moore’s Law and manufacturers’ production rates, purchased hardware will be more expensive and slower than the cloud over time.
Additionally, servers and storage are not the only items you will need to purchase to connect these systems. The systems will require switches, routers, cable, power, cooling, floor space, and security.
Licensing in a data center requires you to license what you use and, in some cases, pay for licenses that you might use.
The capital cost upfront will need to be depreciated over a 3-5 year period depending on your depreciation schedule.
When companies run and operate their hardware, they typically engineer for peak performance, growth requirements, and some spare devices for hardware failures only required intermittently. This type of engineering is standard and requires companies to overbuy hardware that will be underutilized.
No physical hardware purchase is required, and all of the resources canbe available on a pay-as-you-go or utility basis. Additionally, companies can simply move to faster hardware or more optimized hardware as it becomes available, making it the most efficient way to purchase computing power.
No other equipment is needed in the cloud.
There are a few different ways to manage licensing in the cloud. The first is to pay as you go, and therefore you are only paying for the license when the system is up and running.
Another method, if you have paid for licensing already, is Hybrid licensing in the cloud, which allows you to leverage lower costs on some systems because you already own a license.
Companies only pay for what they use, and therefore they can optimize the expense related to IT.
Operating expense (mostly) is the expense treatment that you use in the cloud. The challenge with OPEX vs. CAPEX is that companies valued or bonused on EBITDA will need to convince the CFO that when you measure depreciation vs. expense in the cloud, ultimately be a lower and more efficient cost model will benefit the company’s health.