Comment by neurotixz | Hacker News Reader

Comment by neurotixz | Hacker News Reader

I do not know who your customers are, but for lots of corporations, spending a fortune on hardware (capex) is easier then spending anything on services (opex). It is linked to accounting rules for those 2 different categories of spending (I am not an accountant, I just happen to be dealing with one on a regular basis, as well as with a feew large entreprises).

So for your product to be competitive, it needs to be very compelling to get over that hurdle, and be much superior to anything else. Being in `magic quadrant` in Gartner or other is also useful (yes I know, it does not mean much, but it looks good for management).

One common way of getting over that hurdle is to find a creative way for your service to move to the capex side of things. One example is selling an appliance which does not do much, and relies entirely on your service, sell it for a very high price, bundle a 3 year support contract that covers the cost of your service, and suddenly it's capex :-)

Very good tip. Gartner reports are a huge sell to management - as consultants, it's what we look out for. Management teams are usually risk averse - they want to make sure they are delivering on the needs of the organization and need "evidence" to back up their decision should the investment fail.

You can usually write off things in capex through depreciation, which might be why corporations are willing to spend more on capex than opex. It also looks good to upper management and senior management in that it sounds like you're making an "investment" rather than just spending money to keep the business going.

> for lots of corporations, spending a fortune on hardware (capex) is easier then spending anything on services (opex)

Really? I have only encountered the opposite. CAPEX is normally okay when it fits within normal budget allocations, but any large CAPEX that requires extra budget is a hard sell. OPEX is much preferred because it makes budgeting much more predictable ("$XXXXX per quarter" vs "We might need to spend $XXXXXX some years from now").

That is part of the reason for the cloud craze.

Thanks for the reply, which business fields is this experience coming from?

I could be biased by the industries I worked in (telecom, engineering, banking), there was a constant push to bring down opex spending, by squeezing suppliers on maintenance fees, reducing headcount and improving efficiency (especially in IT). The target is recurring costs.

In those businesses capex looks good in annual reports as they tend to show investment in infrastructure, security and business support tools and software (we invested X$ to improve our telecom infrastructure, call center or any other field of the business). It shows a willingness to stay current, ahead of competitors.

It just shows that knowing how your potential customer are structured is important. Especially for large enterprise customers. Your business model needs to follow those trends.

I think we're probably talking different orders of magnitude and decision-making levels here.

Boards are very happy demonstrating a desire to achieve strategic change over the long term by making large capital investments. They have authority over the management accountants who can create a special budget for those exceptional items (and amortise capex over a long period of time), access to external finance if they need it, and responsibility for deciding exactly what their targeted return on that investment is and when its forecast to happen (sometimes after the fact...)

Much of the operational expenditure comes out of the budget of the responsible department which has annually or quarterly targets the Board has set for it based on existing recurring costs and revenues, so any new items of expenditure had best yield revenue pretty quickly or else cut costs in other areas. Of course, if that department truly believes there will be a longer term payoff they can always go to the Board...

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