Colocation: The Benefits of Cost-Effective Data Centers

With businesses planning and budgeting for their Information Technology (IT) needs for 2021, deciding on whether to build or expand their own data centers may come into play. One alternative to consider is colocation, which is a way to reduce the capital expense (CapEx)of owning your own data center by renting space at a third-party facility. There are significant expenses associated with a data center facility, which we’ll discuss below.

What Does Colocation Mean?

With colocation (also known as “colo”), you deploy your own servers, storage systems and networking equipment at a third-party data center. Simply put, you are basically renting space for your equipment at the colocation facility. That space can be leased by the room, cage, rack or cabinet. However, you get much more than just space. You also get power, backup power, cooling, cabling and more, just as you would at your own data center.

The concept of colocation first emerged in 1998 when businesses moved their racks and servers out of their office locations to colocation centers and were charged on a per-rack basis. Some colocation centers now function at a hyperscale level, catering to the data center facility needs of many large and small businesses alike.

What Is a Colocation Data Center?

A colocation data center is a physical facility that offers rental space to companies to host their servers, storage devices and networking equipment. In addition to the space that is either leased by rack, room, cage or cabinet, it provides facilities such as:

  • Power: Colocation centers typically provide backup power with backup generators and/or uninterruptible power supply to keep your systems up and running 24/7.
  • Cooling: Cooling systems such as redundant HVAC systems, liquid cooling and other technologies are generally provided.
  • Bandwidth: High-speed internet access is provided by all colocation centers so that you have the necessary access to your server processing power.
  • Physical security: Colocation centers typically take stringent measures to protect the IT infrastructure in the building. This could include CCTV monitoring, fire alert, on-site guards and identity authentication.

What Are the Different Types Colocation Centers?

There are a few different types of colo data centers. Let’s take a look at them.

  • Retail colocation center: A customer leases space within a data center, usually a rack, space within a rack, or a caged-off area.
  • Wholesale colocation center: These cater to large organizations and government agencies. A wholesale colocation center client typically requires more space and may prefer that their infrastructure be kept separate from other clients. Due to these reasons, wholesale colocation centers tend to house IT equipment for fewer clients, usually less than 100.
  • Hybrid colocation center: Hybrid, cloud-based colocation is a mix of in-house and outsourced data center services.

Benefits of Using Colocation

Colocation centers offer a number of benefits including the following:

24x7x365 Support and Maintenance

Many colocation centers provide maintenance, monitoring, reporting and troubleshooting to help prevent potential disasters like system failures, security breaches and outages.

Uptime SLAs

Colocation centers provide multiple backup and disaster recovery options to keep services running during power outages and other unexpected events. They also guarantee uptime via service level agreements (SLAs) that can provide a high level of confidence to client companies. In general, colocation centers and data centers are graded on a tier system from Tier 1 to Tier 4, based on uptime.

  • Tier 1 colocation centers provide 99.67 percent uptime, have the lowest amount of redundancy and are expected to have planned downtime.
  • Tier 2 colocation centers provide 99.74 percent uptime with a scheduled yearly downtime required for maintenance.
  • Tier 3 colocation centers provide 99.982 percent uptime. All servers in Tier 3 colocation centers are redundantly powered with two distribution paths. In case of power failure of one path, the servers can still remain online.
  • Tier 4 colocation centers offer 99.995 percent uptime and typically serve large enterprises.

Greater Bandwidth and Connectivity

A colocation center typically offers a broad range of connectivity options to its clients. With multiple internet service providers, cloud environments and other cross connections available, companies can fully optimize their workloads and improve IT operational flexibility.

Lower Costs and Better Ccalability

The cost of managing an in-house data center and IT infrastructure can be higher than the cost of renting space at a colocation center. With colocation, companies can also have a very predictable operational expense model that replaces CapEx with operating expenditure (OpEx). They can also scale quickly and easily, something that cannot be easily achieved with on-premises options since expanding private server rooms and data centers takes months of planning.

Superior Physical Security

As mentioned earlier, many colocation facilities offer multiple layers of security, including authorized access, video surveillance, on-site personnel and mantraps.

Comparing Colocation to On-Premises and Cloud Options

Colocation centers, on-premises solutions and cloud infrastructure all have their own pros and cons. Organizations must evaluate extensively to determine which type of solution best suits their business needs and helps them operate most efficiently.

Colocation vs. On-Premises Solution

Colocation is unarguably cheaper than building and maintaining your own data center. However, in cases where a company has a large amount of legacy infrastructure and/or has complex hardware and network requirements, the on-premises option may be a necessity.

Colocation vs. Cloud

The main difference between colocation and public cloud services (Infrastructure-as-a-Service or IaaS) is that with colocation you own and maintain the hardware (servers, storage, etc.) whereas with IaaS, the service provider owns and maintains all of that equipment. Cloud services provide even greater flexibility to scale up or down as your computing demands change, but could also be more costly. On the other hand, colocation brings with it the risk of vendor lock-in challenges, which can be a drawback for some companies.

Considerations When Choosing A Colocation Provider

With the performance of your business riding on your colocation centers, selecting a provider is an important decision to make. While power redundancy, higher availability, scalability and costs are the obvious factors that influence the selection of a colocation provider, a few additional criteria that can ensure you derive the maximum benefit from your colocation centers are:


The physical location of the colocation center plays a huge role with regards to ease of access and reduction of network latency. Minimizing latency delay is important for application performance. Ask questions like: “Where is your colocation center located?” and “How quickly can you get to it?”

Scalability and Flexibility

What kind of services does your colocation provider offer? Can it address your scaling requirements as your company grows? Can it accommodate any migration demands if required? As your company grows, so does your data. Your colocation facility should be able to cater to any additional capacity needs.

Security Services

What kind of security procedures and protocols are carried out by the colocation provider to protect your company data? For example, some colo centers offer 24×7 network monitoring and provide proactive security alerts and DDoS mitigation services. While all colocation centers provide physical security, you may want to use one that offers more.

Disaster Recovery Preparedness

Companies should align their disaster recovery plans with the colocation facilities they are leasing. Make sure your valuable IT assets are safeguarded against all kinds of disasters and incidents.

Every business strives to reduce its operating expenses and optimize its IT operations to support business growth. With 2021 around the corner, we’re pretty sure your IT budget planning is well underway. Download our 2021 Budgeting Checklist to help you with the planning process so you get a leg up for the new year.

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