CapEx and OpEx: How Outsourced Wi-Fi Changes IT Budgeting
So far, we’ve discussed why the leveraged business model of MSPs can improve results and cut costs for organizational Wi-Fi users – and thus essentially everyone today. MSPs can offer capabilities that benefit both capital spending and ongoing operations, and provide a degree of expertise that might otherwise be difficult to establish and maintain.
It is, however, fair to ask if such a strategy is right in every case. While we again believe that the services/utility/MSP model will dominate in Wi-Fi over time, this time we present a framework for determining if this direction is right for you.
Based on an analysis of both immediate costs and cost projections, for example, it could be dead wrong – assuming a technically-competent MSP (and such is easy to determine), the decision, then, is fundamentally based on economics.
There are two primary cost components in wireless (and, in fact in IT overall and beyond): capital expense (CapEx) and operating expense (OpEx).
CapEx includes equipment, planning and other non-recurring engineering (NRE), acquisition, installation, configuration, and physical additions, modifications, and upgrades over the life-cycle of a given purchase. CapEx is mostly manufacturing-intensive – the faster/better/cheaper phenomenon that has defined high tech and IT for decades is (along with advances in basic technologies, of course) really a function of VLSI (very-large-scale integration ) and advanced manufacturing, which lowers cost and improves performance and thus yielding the steady improvements in price/performance that we all love. In other words, CapEx buys more value all the time.
OpEx, on the other hand, is labor-intensive. OpEx involves literally every other activity required to keep a Wi-Fi installation on the air, including ongoing management and operations, troubleshooting, repairs, help desk, and much more. Being labor-intensive, efficiency in these activities depends upon advances in the capabilities of individual workers. But we can push productivity only so far – everyone needs sleep, but education and experience take time, and most people in IT appreciate a weekend off now and then. And whereas the cost of capital gear always decreases over time (or, at the very least, its value increases, and often dramatically – just consider Wave 2 of 802.11ac, for example), the cost of people tends to rise over time, and, again, often with little to no increase in productivity. And there is often no way to automate the tasks these people perform.
So this is where the MSP concept as applied to WaaS really shines. Because the labor-intensive elements are in this case amortized across multiple end-user organizations, expertise can be leveraged and thus can be much more cost-effective.
Some tech support and operations staff will likely still be required in the end-user organization, but the numbers should be reduced – and with no compromise to quality, service, or performance.
And so much so that we’ve literally flipped our advice to end-users on its head over the past decade. Ten years or so ago, we suggested that the right strategy was to substitute CapEx for OpEx – buy more and better gear, upgrade management software, and tools, and save on operating costs.
With the MSP model, though, we suggest just the opposite – outsource Wi-Fi to the greatest degree possible, and write one OpEx check every month, just as we often do today with Cloud services that were formerly provisioned via CapEx locally.
Each case is different, but get some quotes and do the math – I think you’ll be surprised at the results. Again, it’s all about leverage, and leverage saves money. It’s always better to take advantage of someone else’s experience curve, rather than re-inventing the wheel on your own.
Next time – let’s put the MSP WaaS model to work.
All posts in this series: