> [He] was floored when he saw [...] that we were able to make our infrastructure expenses OpEx instead of CapEx.
Can someone ELI5 to me why spending a dollar on OpEx is better than spending a dollar on CapEx?
Can someone ELI5 to me why spending a dollar on OpEx is better than spending a dollar on CapEx?
The real magic, though, is flexibility: you don't have to bunch all of your server purchases into an annual (or worse) exercise, execute a buildout at a data center, and then somehow allocate them to internal teams consuming them prior to the next capacity planning exercise. You just fire API calls, and a bill arrives at the end of the month. The bill may be a lot of money, but the amount you were spending on planning, building, operating, fixing, and decommissioning your infra was a lot of money, too, split between big spiky equipment purchases and employee salaries with a dusting of leases and electricity on top.
And from an investor point of view, if the business fails you don’t have to worry about the sell off / write down of any hardware that was purchased to get the company started.
The simplification of OpEx vs CapEx is worth a decent premium, especially in the early days when no one knows if the company really has a chance and everyone is scrambling to figure out what you’ll be when you grow up (aka product / market fit).
If you can lease it instead, the tax burden is placed on the lessor. In Houston, that's around 3% of the value of the property.
Instead, with CapEx, you go and spend $10 million on a data center buildout (raising a lot of money from investors which is work too) with $0 revenues coming in at the time, that's real money with no guarantee of any return.