CFOs: Increasingly Addicted to Opex for IT Expenses?

CFOs: Increasingly Addicted to Opex for IT Expenses?

During lunch with a software industry executive yesterday, I got into a friendly debate. To paraphrase, the executive thinks enterprise CIOs and CFOs will begin to shift more of their attention back to Capex (capital expense) purchases (on-premise hardware and software) as the economy improves. I firmly disagree. I think the genie is out of the bottle, and more and more IT budget will shift over time to Opex (operational expenses) like managed services, SaaS and cloud.

To be clear: I'm not predicting the death of on-premise product sales. Most of the consultants I hear from say the most profitable MSPs offer a mix of managed services and product sales. Product refreshes -- Windows desktops, laptops, etc. -- are on the rise. And new on-premise equipment -- switches, routers, etc. -- continues to flow into corporations.

But I think in terms of overall IT budgets, the pendulum will continue to swing toward the cloud and managed services. There are two reasons why:

  • CFOs are getting addicted to Opex, and I don't think an improving economy will break that addiction.
  • Most (though certainly not all) managed services and cloud technologies work.
The cloud noise is extremely loud. There may even be a cloud bubble that bursts soon. But Salesforce.com, NetSuite and other publicly held SaaS specialists have been around for more than a decade. Most MSP software tools are now available both on-premise and in the cloud. Remote monitoring and management tools really do reduce truck rolls and improve system up-time. Broadband is mainstream in the U.S. (well, mostly). The shift toward highly reliable hardened hardware continues. Example: When was the last time you heard a user really whining about an iPad crash or an iPad data loss? So I think the future involves highly reliable endpoints tied to the cloud.

Even corporate IT shops with their own developers will shift to the cloud because it's easier to design, develop, troubleshoot, stage and launch new applications using an on-demand cloud platform rather than building and maintaining internal test labs.

Bottom line: On-premise product sales will never die. Users will always need end-point devices. On the back-end, some CFOs and CIOs may say they're a bit nervous about security and reliability issues in the cloud. But CFO and CIO addiction to operational expenses is growing. And that addiction won't change as the economy further improves.

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