CAPEX vs. Subscriptions: How to Determine the True Value in IT Services

Organizations today need flexibility more than ever. That applies to everything from adopting hybrid work models to procuring IT services. 

Not surprisingly, cost is a key consideration when selecting services. One way to look at cost is through capital expenditures (CAPEX) versus subscriptions offered under operational expenditures (OPEX). A key consideration is to determine is whether CAPEX and OPEX are competing with one another in terms of cost. To do so, we first have to understand what these terms mean. From there, we can get a better understanding of the true value that must be factored into the cost. Don’t make the mistake of assuming that cost is simply the price of the initial transaction—there are many factors that create value that must also be considered.

What Are CAPEX and OPEX?

First, let’s look at what these terms mean. 

CAPEX: CAPEX is a type of transaction where a company uses its funds to acquire fixed assets. The assets are capitalized on the company’s balance sheet and depreciated over time. This can also be fixed assets that are leased, where the asset is used by just one customer and purchased over a period of time.

OPEX: OPEX is expenditure on nonmaterial purchases (i.e., not a purchase of fixed assets) that form the day-to-day expenses to keep a business running. OPEX is generally paid weekly, monthly, or yearly within the current accounting period. A subscription to a service is an example of an OPEX expenditure since the customer isn’t purchasing a fixed asset and is only receiving the business or IT service for the timeframe during which they pay a subscription fee.

At Pure Storage®, we offer two subscription services that customers can treat as OPEX*:

• Evergreen Storage™ Subscription: Supports the ongoing upgrade of a material asset acquired through a CAPEX purchase (including a lease or a hire purchase) over a defined time period. The Evergreen model simplifies and improves the ownership experience by providing a subscription to ongoing software and hardware innovations. 
• Pure as-a-Service™: Delivers IT services over a defined subscription term, supported by SLA and commitments, “enabling value co-creation by facilitating outcomes that customers want to achieve, without the customer having to manage specific costs and risks” (as per ITIL v4 definition). As-a-service offerings are also available for Portworx® and FlashStack®.

Both scenarios deliver subscriptions but for different services aligned to different use cases. They also deliver very different value propositions to the customer, depending on their use of Pure as-a-Service rather than CAPEX, or vice versa. Because of the different applications to a customer’s business, they’re not competing services.

The Rise of as-a-Service Offerings

Gartner, IDC, and other industry analysts estimate that approximately half of Global 2000 ranked public companies will procure their infrastructure through “as-a-service” offerings by 2024. This digital transformation has been accelerated somewhat by the global pandemic, but it was already flourishing due to socioeconomic and geopolitical factors, the impact of major natural disasters, and a drive to meet targets on climate change.

Pure as-a-Service provides a fully formed, data management service through an as-a-service subscription model. It delivers fast, agile, unified data services that accelerate operational digital transformation and help customers to evolve and improve risk management. We provide our solutions in the way that customers want to consume them, in a way that better assures the outcomes they want to achieve, and with all the flexibility and control they’re looking for. 

CAPEX purchases across the marketplace don’t offer the same level of flexibility, risk mitigation, and overall service that Pure as-a-Service customers benefit from. To create a comparable CAPEX experience and to match the value that Pure as-a-Service can provide, you’ll need a CAPEX proposal that, as a minimum:

• Is sized on Day 1 for the full timeframe (typically depreciated over five years) with an added 25% of capacity to address nonorganic growth. Pure as-a-Service is sized and deployed for the initial usage requirement plus the lower of 25% or 100TiB. The service continually grows and evolves the underlying infrastructure as the usage increases over the term at no additional cost to the customer over usage.
• Includes public cloud, block storage for each site hosting on-premises data. Pure as-a-Service (Performance tier) includes Pure Cloud Block Store™ by default, enabling customers to move data seamlessly between on-prem and public cloud.
• Includes a subscription for all purchased assets to provide both hardware and software upgrades during the lifetime of the purchased arrays. With an Evergreen Gold subscription, Pure customers enjoy seamless and nondisruptive upgrades. Based on the Evergreen principle, Pure as-a-Service deployed hardware is evolved and replaced as required throughout the term and as usage demands dictate to maintain Pure service commitments. Keep in mind that Evergreen doesn’t include SLAs, and all upgrades are managed by the user. However, both Pure as-a-Service and Evergreen leverage Pure’s Evergreen™ architecture which makes upgrades seamless and nondisruptive. 
• Quotes a business-critical services subscription to deliver premium support. Pure as-a-Service includes standard premium support with our Business Critical Services offering. In addition, Pure customers receive support from our Customer Success team, and we also perform capacity management. 

With other vendors, you’re still retaining the risk of the large initial investment in a fixed technology solution. You’re not receiving the benefit of a shared-risk model against operational or commercial risk that Pure offers. You’ll be deploying equipment in your data center that is sized to reflect the projected requirements years ahead of time. This isn’t cost-efficient in terms of hosting, and it isn’t conducive to delivering against “green” initiatives.

CAPEX vs. Subscriptions 101: Pure as-a-Service Provides Maximum Value

Pure as-a-Service maximizes the value we deliver by enabling our customers to buy in the same way that they want to consume. 

We’ve successfully separated the service from the infrastructure to provide an IT service offering underpinned by commitments from Pure that the platform will always have enough capacity, always be performant, and always be available. The value is in the power of the OPEX subscription.

*Note: OPEX treatment is subject to customer’s auditor review.