In an Infrastructure as a Service (IaaS) model, a third-party provider hosts hardware, software, servers, storage and other infrastructure components on behalf of its clients. For you, it means your organization will not own or lease the infrastructure, you pay for its use. Now, imagine extending that model to infrastructure in your own facilities, and include monitoring & management. Sound far fetched? It's not!
The next time your business needs new internet appliances, networking equipment or other technology, the traditional question you would ask yourself is should you buy it or lease it? Both options have their pros and cons. Ultimately, your method of acquisition will be based on several factors. Let's look at some of the benefits & costs of the purchase and lease options for your on-premises equipment. Then, we'll look at the new IaaS subscription model for your on-premises equipment.
Purchase Your Equipment
- It's easier than leasing. Buying equipment is easy. You decide what you need, then go out and buy it. While you may negotiate the price, there are typically no contracts to sign.
- Your equipment is deductible. The IRS currently lets you deduct the full cost of newly purchased assets, such as technology equipment, starting in the first year. Of course, the IRS can (and has) changed that regulation (Section 179 Qualifying Property).
- The initial outlay for needed equipment may be too much. Your business may have to tie up lines of credit or invest hefty funds to acquire the equipment you need. Those lines of credit and funds could be used for other functions that can help grow your business.
- Eventually, you're stuck with outdated equipment. Most technology equipment becomes outdated quite quickly. A growing business may need to refresh and invest in its technology every 18-36 months to remain competitive. You may be stuck with outdated equipment that you will be responsible to donate, sell or recycle.
Lease Your Equipment
- Leasing keeps your equipment up-to-date. All technology equipment eventually become obsolete. With a lease, you pass the financial burden of obsolescence to the equipment leasing company.
- You'll have predictable monthly expenses. You have a predetermined monthly line item expense, which can help you budget more effectively.
- You'll pay more in the long run. While leases rarely require a down payment, leasing is almost always more expensive than purchasing.
Another business decision you will make with a purchase or lease option is if/how you will manage the maintenance and support of the equipment. Even if the hardware is not obsolete over the life of the equipment, you will need to upgrade the firmware, apply security patches, update configurations, etc. to keep the performance of the equipment in top form. The cost of maintenance and support from the equipment vendor can cost 20% or more annually of the equipment purchase. In addition, you need to account for the cost of personal (staff or contracted) to keep your equipment supported.
Infrastructure as a Service now extends to on-premises implementation. Like a hosted IaaS model, you will not own or lease the equipment under contract. Your on-premises equipment (routers, firewalls, internet appliances, etc.) will be owned by the service provider. And, the all of the support responsibilities will be included in your subscription contract.
- You'll have predictable monthly expenses. Like a lease, you will have a predetermined monthly cost, which can help you budget more effectively. In addition, this will include your maintenance and support costs.
- You won't be stuck with outdated equipment. Your contract will ensure all firmware, security patches, configuration settings, etc. will be current. In addition, you will get hardware upgrades as your current hardware reaches its end-of-life.
- Completely monitored and managed. Your subscription will completely monitor, maintain and mange the equipment, including on-site service calls if needed. The vendor will likely know of service issues or upgrade needs before you will.
- Cost. When you consider all of the actual expenses with the tradition purchase and leasing options, including the cost of manpower time and effort that can be reallocated to actually growing your business, on-premises IaaS can be a very efficient model
On-premises IaaS is a solution worthy of your consideration. You will have many factors to consider when you need to acquire technology equipment. Now, you have another option to consider as to how you will acquire and implement that new equipment.
For more information on this topic, contact Princeton Technology Advisors, LLC.
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David Schuchman Princeton Technology Advisors