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Difficulty: EasyUnderstand concepts of cloud economics

A retail company, GreenSprout Foods, plans to launch an e-commerce platform. Instead of purchasing physical servers and networking hardware upfront, the company decides to host the website on AWS, where they pay only for the resources they consume on a monthly basis. What economic term describes this transition in spending?

  1. A
    Transitioning from dynamic pricing to fixed-cost provisioning
  2. B
    Transitioning from operating expenses (OpEx) to capital expenses (CapEx)
  3. Transitioning from capital expenses (CapEx) to operating expenses (OpEx)Answer
  4. D
    Transitioning from decentralized budgeting to monolithic licensing

Answer

Transitioning from capital expenses (CapEx) to operating expenses (OpEx)
The correct answer is the option describing the transition from capital expenses to operating expenses. By hosting its platform on AWS rather than building a private data center, the company avoids upfront physical hardware purchases (CapEx) and instead pays variable costs based on monthly resource usage (OpEx).

Step-by-Step Solution

1
Identify the type of expense avoided by not purchasing physical hardware upfront.
Purchasing physical servers and hardware represents a capital expense (CapEx).
CapEx involves upfront spending on physical assets that are depreciated over time.
2
Identify the type of expense incurred by paying monthly for consumed cloud resources.
Paying for ongoing cloud resource consumption represents an operating expense (OpEx).
OpEx involves day-to-day operational costs where you pay for what you use.
3
Select the option that correctly describes the direction of this economic shift.
The shift is from CapEx (upfront hardware) to OpEx (monthly consumption).
This matches the core cloud economics benefit of trading capital expense for operating expense.

Key Concept

Trading capital expenses for operating expenses allows businesses to pay for resources dynamically rather than investing heavily in physical data centers upfront.
Estimated Time:45s
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Understand concepts of cloud economics

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