The capital expenditure (CapEx) model is a financial model where an organization pays for the acquisition of physical assets upfront and then deducts that expense from its tax bill over time1. The CapEx model is typically used for on-premises infrastructure, where the organization has to purchase, install, and maintain servers, software licenses, and other hardware components. The CapEx model requires a large initial investment, but it also provides more control and ownership over the assets2.

The cloud, on the other hand, usually follows the operational expenditure (OpEx) model, where an organization pays for the consumption of cloud services on a regular basis, such as monthly or hourly. The OpEx model is also known as the pay-as-you-go model, and it allows the organization to scale up or down the cloud resources as needed, without having to incur any upfront costs or long-term commitments2. The OpEx model provides more flexibility and agility, but it also introduces more variability and uncertainty in the cloud expenditures3.

However, some cloud providers offer reservation models, where an organization can reserve cloud resources in advance for a fixed period of time, such as one or three years, and receive adiscounted price compared to the pay-as-you-go rate. Reservation models can help an organization plan for cloud expenditures in a way that most closely aligns with the CapEx model, as they involve paying a lump sum upfront and then amortizing that cost over the reservation term4. Reservation models can also provide more predictability and stability in the cloud costs, as well as guarantee the availability and performance of the reserved resources5.

One example of a reservation model is the Amazon EC2 Reserved Instances (RI), which allow an organization to reserve EC2 instances for one or three years and save up to 75% compared to the on-demand price. Another example is the Azure Reserved Virtual Machine Instances (RIs), which allow an organization to reserve VMs for one or three years and save up to 72% compared to the pay-as-you-go price. Reservation models are also available for other cloud services, such as databases, containers, storage, and networking.

Therefore, using reserved cloud instances is the best strategy to plan for cloud expenditures in a way that most closely aligns with the CapEx model, as it involves paying a fixed amount upfront and receiving a discounted price for the reserved resources over a specified term. References: 1: https://www.browserstack.com/guide/capex-vs-opex 2: https://www.comptia.org/training/books/cloud-essentials-clo-002-study-guide, Chapter 6, page 215-216 3: https://learn.microsoft.com/en-us/azure/cloud-adoption-framework/strategy/financial-considerations/ 4: https://docs.aws.amazon.com/whitepapers/latest/cost-optimization-reservation-models/welcome.html 5: https://learn.microsoft.com/en-us/azure/well-architected/cost/design-price : https://aws.amazon.com/ec2/pricing/reserved-instances/ : https://azure.microsoft.com/en-us/pricing/reserved-vm-instances/ : https://www.comptia.org/training/books/cloud-essentials-clo-002-study-guide, Chapter 5, page 179-180