Total cost of Cloud Elasticity: Comparing OPEX and CAPEX in Hybrid IT

Organizational IT needs are evolving  

Enterprise IT spending keeps rising in 2025[2], driven by AI workloads, data regulations, and increasingly complex hybrid environments. But with higher interest rates and tighter budgets, CIOs and CFOs must now prove that every IT dollar delivers clear value. 

Public cloud still offers unmatched flexibility, but that elasticity comes at a cost. Hidden fees, unused capacity, and long-term commitments are making many companies question whether cloud is always the most cost-efficient option – especially for stable, data-heavy workloads. 

This blog introduces the Total Cost of Elasticity (TCE) framework, a structured benchmarking model designed to help organizations compare OPEX-based elasticity (e.g., on-demand cloud, reserved instances, managed services) with CAPEX-based ownership (e.g., colocation, private cloud). The framework quantifies the trade-offs between cost and agility, helping IT and finance leaders find the right balance, reduce waste, and improve infrastructure ROI. 

The challenges of public vs. private cloud platforms 

The shift toward hybrid cloud infrastructure has introduced a complex set of trade-offs between flexibility, cost, and control. Public cloud platforms deliver speed and scalability but often come with unpredictable costs and complex pricing structures. Private or colocation models can offer better cost control over time, though they require upfront investment and stronger operational planning. 

Key challenges for decision-makers: 

1. Cost predictability: Cloud providers offer significant discounts, up to 72%[3], for committed usage, but inaccurate forecasting often leads to wasted spend or overcommitment. 
2. Data movement costs: AI and analytics workloads generate heavy data flows, and associated transfer fees can quickly erode savings. 
3. Infrastructure constraints: Rising demand and construction delays are increasing costs and lead times for new capacity. 
4. FinOps governance gaps: Many organizations lack clear visibility into what drives infrastructure costs, making it difficult to link spend to business value. 

How should organizations evaluate solutions? 

When choosing between cloud-based (OPEX) and owned (CAPEX) infrastructure, organizations should use a consistent set of criteria to identify which model best fits each workload’s predictability, cost profile, and operational readiness. 

Optimizing cloud spend 

To optimize cloud spend, enterprises should adopt a hybrid sourcing strategy that balances elasticity with ownership. The Total Cost of Elasticity (TCE) framework enables this by segmenting workloads based on predictability, data gravity and cost sensitivity. This structured approach produces a balanced hybrid strategy that preserves flexibility, reduces unnecessary spend, and strengthens ROI. 

For predictable workloads (Elastic Base Optimization), consider using long-term cloud commitments (like AWS Savings Plans or Azure Reservations). 

• Saves up to 70% vs. pay-as-you-go 
• Best for stable workloads (e.g., ERP systems) 
• Target covering 60–80% of total usage 

For variable workloads (Burst Workload Flexibility), use on-demand or spot instances for unpredictable, short-term tasks. 

• No long-term contracts 
• Ideal for AI training or seasonal demand 
• Needs tools to automatically scale up/down and track prices 

In case of data-heavy, stable workloads (CAPEX/Colocation), consider private infrastructure or colocation to control cost and performance. 

• Avoids expensive cloud data transfer fees 
• Lower long-term unit costs 
• Start small - pilot in one or two markets 

Finally, back it all with strong FinOps governance – the financial management discipline for cloud – to ensure visibility, accountability, and informed decisions across finance, engineering, and IT teams. 

Source: Amazon, Microsoft, Google, Dropbox, Beroe Analysis 

Examples of savings with a TCE framework approach 

Adopting the TCE approach can unlock significant savings across providers by optimizing how commitments and workloads are managed. 

How can organizations adopt a TCE framework?  

To make smarter sourcing decisions, organizations should take a phased, data-driven approach that aligns infrastructure choices with workload needs and financial goals: 

1. Build visibility – Tag workloads and track costs across cloud and owned infrastructure to understand true usage and unit costs (e.g. post per kW/cost per GB/hour). 
2. Right-size cloud use – Commit 60–80% of predictable workloads to discounted plans (e.g., AWS SPs, Azure Reservations, GCP CUDs) and review regularly to avoid overpayment. 
3. Keep flexibility where needed – Use on-demand or spot instances for variable workloads, supported by autoscaling and real-time cost tools. 
4. Test private or colocation options – Pilot data-heavy, stable workloads on CAPEX infrastructure to validate savings before scaling. 
5. Tighten FinOps alignment – Bring finance, operations, and engineering together under shared cost and efficiency metrics. 
6. Scale in sequence – Start with cloud commitments, then expand hybrid infrastructure as justified by results. 

This step-by-step approach helps organizations balance cost, flexibility, and control while reducing risk and improving ROI. 

By benchmarking OPEX-based elasticity against CAPEX-based ownership, organizations can avoid underutilized cloud commitments, reduce infrastructure overspend, and improve unit economics. In today’s capital-constrained environment, enterprises must pay for flexibility only where it delivers measurable business value. 

References 

1. Amazon Web Services, “Savings Plans,” [Online]. Available: https://aws.amazon.com/savingsplans. [Accessed: September 2025]. 
2. Amazon Web Services, “Savings Plans,” [Online]. Available: https://aws.amazon.com/savingsplans [Accessed: September 2025]. 
3. Microsoft Azure, “Reservations and Savings Plans,” [Online]. Available: https://learn.microsoft.com/en-us/azure/cost-management-billing/reservations/save-compute-costs-reservations [Accessed: September 2025]. 
4. Google Cloud, “Committed Use Discounts,” [Online]. Available: https://cloud.google.com/docs/cuds [Accessed: September 2025]. 
5. Dropbox, “Why We Left the Cloud,” [Online]. Available: https://dropbox.tech/infrastructure/why-we-left-the-cloud [Accessed: September 2025]. 
6. 37signals, “Repatriating from the Cloud,” [Online]. Available: https://world.hey.com/dhh/repatriating-from-the-cloud-2023-5e6e6c3f [Accessed: September 2025]. 
7. Structure Research, “Global Colocation Pricing Trends 2025,” [Online]. Available: https://structureresearch.net [Accessed: September 2025]. 
8. Apptio, “FinOps Capabilities for Cloud Optimization,” [Online]. Available: https://www.apptio.com/solutions/finops/ [Accessed: September 2025]. 
9. CloudHealth by VMware, “Cloud Cost Management,” [Online]. Available: https://www.cloudhealthtech.com [Accessed: September 2025]. 
10. Gartner, “Worldwide IT Spending to Grow 7.9 Percent in 2025,” Technology Magazine, Jul. 2025. [Online]. Available: Gartner Forecasts Worldwide IT Spending to Grow 7.9% in 2025 https://www.gartner.com/en/newsroom/press-releases/2025-07-15-gartner-forecasts-worldwide-it-spending-to-grow-7-point-9-percent-in-2025 [Accessed: September 2025]. 
11. S&P Global Ratings, “Global IT spending to soar in 2025,” ComputerWeekly, Jan. 2025. [Online]. Available: https://www.computerweekly.com/news/366618063/Global-IT-spending-to-soar-in-2025. [Accessed: Sep. 2025].