Capital expenses (CapEx) are significant upfront costs that cannot be easily adjusted for the desired scale. In an on-premises environment, the physical hardware such as servers must be purchased as a CapEx, often resulting in over-provisioning to account for potential growth, creating inefficiency. In the AWS Cloud, this cost is converted into a variable expense (OpEx), as you pay for only what you use, enabling more efficient scaling and avoiding unnecessary upfront hardware investments. Purchasing or leasing software licenses or real estate does not specifically pertain to cost advantages of cloud computing, whereas these could still be expenses in both on-premises and cloud models. Similarly, utility costs like electricity would typically remain as operational expenses in both contexts.