What is Data Center Colocation, and Do You Need It?

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Data center colocation is an outsourced data center solution that businesses typically use to expand past the capacity of their own data center. Most typically, smaller companies with limited IT resources choose this option over building their own data center because it's a cheaper option.

With colocation, several organizations place their servers in – or lease servers – from the same physical colocation data center provider. Colocation tends to include network connections and the associated bandwidth, redundant power, cooling and physical offices. Geographically dispersed businesses may use several colocation facilities to ensure that the respective data center locations are nearby their office locations.

Colocation is sometimes called "colo" for short. Alternatively, colocation may be referred to as "carrier hotels." A point of confusion is the difference in terms, colocation data centers vs. colocation server racks, which are not the same thing. Colocation server racks house servers used by multiple companies.

 data center colocation

With data center colocation, even an advanced Tier 4 data center can be mirrored in a remote location.

Colocation Benefits

The benefits of colocation should be compared with other alternatives, such as public clouds and private clouds, so a business can make the best investments. Colocation benefits include:

Cost control. Costs are pre-determined in the service provider's contract.

Headcount control. Infrastructure setup and maintenance, including cooling, power, and interconnections between resources tend to be handled by the colocation provider.

Scalability. Colocation providers tend to have ample space to expand resources within a given data center. When negotiating with a service provider, the customer should always inquire about this.

Reliability. Colocation data centers provide redundancy and disaster recovery, bandwidth connections through several service providers, uninterrupted power supplies and backup power generators.

Security. Since colocation providers are maintaining equipment for several companies, they necessarily provide multiple layers of security to protect the infrastructure.

Lower costs. Colocation is cheaper than building a data center from scratch.

OpEx vs. CapEx. Leasing equipment is an operational expense, while buying equipment is a capital expenditure. Accounting rules treat the two options differently. OpEx is said to be preferable over CapEx because OpEx is fully tax-deductible, whereas CapEx costs are amortized. Colocation can involve both in situations when a company owns the servers and storage and leases the bandwidth, floor space, cooling, power and security.

24/7/365 support. The systems are maintained by knowledgeable IT staff and engineers.

Flexibility. Some companies opt for a private data center suite within the data while others opt for shared facilities.

Newer vs. older infrastructure. Colocation providers use state-of-the-art equipment to stay competitive. In-house data centers tend to have aging infrastructure.

Data Center Colocation Costs

Colocation costs may vary among data center companies. Costs are also determined by a customer's unique requirements. Essentially, it's the cost of leasing whatever is required, which can include:

  • Cost per rack
  • Cost per kW (includes cooling)
  • Cost per square foot
  • Bandwidth
  • Server management and maintenance
  • Cross connects to carriers (may or may not be an added expense)
  • Cages and cabinets for added security
  • Shared facility vs dedicated data center suite
  • Service-level agreement (SLA)
  • Compliance management
  • Single location vs multiple locations
  • Planning and logistics support (also known as "remote hands")

Colocation vs. Cloud Computing

Colocation and cloud computing both provide a shared facility. However, colocation customers usually own the servers, which the colocation provider manages. And they lease physical space and other components such as network connections, redundant power supplies and cooling from the colocation provider.

Cloud companies own and manage all the infrastructure components and make them available as a service via the Internet to customers that subscribe to the service. Since IT doesn't manage cloud infrastructure, it has more time to focus on strategic work and innovation. In short, colocation is tangible, meaning that a customer's servers exist in a readily-identifiable location. Cloud is intangible because infrastructure is made available as a service.

Colocation can be used as a stepping stone to cloud for data center migration or used simultaneously with cloud, depending on a company's preferences and requirements. For example, some organizations hesitate to put sensitive information in a public cloud environment because they believe it's more secure in an on-site data center.

Colocation can provide non-cloud experience with third-party managed infrastructure. Some colocation providers offer cloud services to provide customers with greater migration and task flexibility. Usually it's not a choice of colocation vs. cloud, it's colocation and cloud. The service provider may or may not charge a customer for moving some or all their resources from colocation to cloud, depending on which hybrid cloud provider contracted. Alternatively, the colocation provider may not offer migration services or even managed services.

Colocation may be cheaper than cloud, which may seem surprising. A common mistake is to believe that cloud is necessarily cheaper than other options. This is especially true when one is not familiar with the "gotchas," like leaving resources up and running vs. tearing them down after they are no longer needed.

That said, cloud offers on-demand resources whereas the point of colocation is to have dedicated resources. It is far easier to dynamically scale resources in a cloud environment.

Small companies are more likely to go directly to the cloud because they lack internal IT resources. Larger companies that want to maintain tight control over some servers choose colocation usually as part of a hybrid data center architecture strategy that provides greater overall more efficient data center. To get visibility into the colocation data center, customers take advantage of data center management software.

Colocation Facilities

Customers can choose from several colocation facilities options including:

  • Retail colocation. This is a shared data center environment in which a customer leases a rack, space within a rack or a cabinet for higher security.
  • Wholesale colocation. This is a dedicated data center within the larger colocation data center facility.
  • Hybrid cloud-based colocation. Colocation is used as part of a hybrid cloud strategy.

Why Data Center Tiers are Important

Data center tiers reflect a degree of robustness. Tier 1 is the lowest tier; Tier 4 is the highest tier.

Tier 1 Tier 2 Tier 3 Tier 4
Robustness Lowest Medium low Medium high Highest
Failure likelihood Highest Medium high Medium low Lowest
Attributes Non-redundant capacity components Tier 1 plus partially redundant power and cooling Tier 2 plus dual-powered equipment and multiple uplinks Tier 3 plus all components are fully redundant
Uptime 99.67% 99.75% 99.98% 100.00%
Downtime per year 28.6 hours 22 hours 1.6 hours 26.3 minutes


Colocation Service Providers

Colocation service providers offer a diverse set of services. Some are very hands on, others less so. If you're in the market for a provider, this is one area where it truly helps to do your homework. A data center's link to its colocation facility must be secure and seamless.

  • CoreSite
  • Centurylink/Cyxtera Technologies
  • CyrusOne
  • Digital Reality (merged with Dupont Fabros Technology)
  • Equinix
  • Flexential
  • Global Switch
  • Iron Mountain
  • Rackspace
  • Telehouse


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