When managing data, businesses today have a smorgasbord of options. You can own and operate your own data center, opt for colocation, dive into the public or private cloud, or mix it up with a hybrid approach. The deciding factor often boils down to whether you should go with a capital expenditure (CapEx) or an operational expense (OpEx) model.

With data center costs expected to see double-digit growth again in 2024, according to CBRE, many organizations are scrutinizing CapEx vs. OpEx costs – with the latter usually relating to service models – and are seeing colocation centers as the more cost-effective solution. Indeed, The global data center colocation market, valued at $31.9 billion in 2023, is expected to experience an 8.4% compound annual growth rate (CAGR) and reach $58.4 billion by 2031, according to InsightAce.

Here are some key factors organizations consider when deciding between CapEx and OpEx approaches:

CAPEX Strategy: The Traditional Approach

For years, big enterprises, especially those in tightly regulated industries, have gone the CapEx route, owning and operating private data centers. This meant shelling out a lot of cash upfront and preparing for future spending on equipment and expansion. Building a data center can take around 18 months and involves everything from securing real estate to designing and maintaining the infrastructure.

While the ownership of a data center grants you complete control, it also presents its fair share of challenges. Equipment failures and unforeseen scaling needs can disrupt even the most well-laid plans, leading to unpredictable costs. Moreover, if your data requirements decrease, you're left with underutilized assets that can impact your return on investment (ROI). It’s important to note that while running older servers may reduce your initial capital expenditure (CapEx), it often leads to increased operational expenses (OpEx) due to more frequent maintenance and lower efficiency.

You're on the hook for everything when you own a data center. First, you must find real estate, buy equipment, design and set up the infrastructure, hire and keep staff, manage the infrastructure, scale as needed, and ensure security and compliance. This takes a hefty amount of time, budget, and resources—often pulling focus from your core business.

OPEX Strategy: The Flexible Alternative

On the flip side, when businesses shift to an OpEx model, opting for colocation and public cloud solutions, they only pay for the space, power, and resources they need – in a ready-made, managed environment. The provider does the heavy lifting, handling staffing, security, network diversity, and compliance standards. This makes costs more predictable and easier to control.

With OpEx, scaling up is also a breeze. You can tap into additional capacity without the massive upfront costs. Need more space? It’s there. Need additional bandwidth? No problem. This model also plays well with hybrid cloud strategies, offering smooth connectivity and access to public cloud services.

If you choose an OpEx model, your main tasks include picking the right provider, selecting a location, collaborating with the provider to design a setup that suits your needs, communicating changes, meeting compliance responsibilities, and ordering network connections. This setup lets you focus more on your business while the provider manages the data center.

Which Is Right for You?

So, which model should you choose? It all boils down to what makes the most financial and strategic sense for your business. CapEx offers control but comes with hefty responsibilities and risks. OpEx provides flexibility and efficiency, letting you focus on what you do best.

There's no one-size-fits-all answer when it comes to data center strategy. Each business should weigh the pros and cons based on its needs and priorities. By considering the demands and benefits of both CapEx and OpEx models, you can make a well-informed decision that aligns with your operational goals and financial constraints.