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What is Colocation Hosting?

Colocation is like mini-storage for servers. Rather than building a data center for themselves, or trying to run servers out of office spaces, companies who need to run their own server equipment can rent server rack space, internet bandwidth, and even equipment from a colocation center.

Who uses colocation?

Colocation is sort of a middle-ground between consuming cloud infrastructure and building a dedicated data center. Any company that has server needs that cannot be met by existing cloud providers is a good candidate for colocation.

Colocation is especially popular with midsize organizations in the IT and internet sector, because it allows them to focus on specific value-added work rather than server logistics. This may include companies in the eCommerce, telecommunications, and industrial services industries.

Colocation is also very popular with providers of Cloud infrastructure, who rent space for their servers and then rent out server access to cloud customers.

Benefits of colocation

The cost savings found in the large-scale data centers run by major companies can be realized by small and medium-sized companies that are essentially pooling their data center needs by renting shared facilities. Additionally, colocation allows companies to quickly scale their server capacity up or down as needed.

Other benefits realized by this pooling of needs and resources include:

  • Cheaper floor space
  • Highly reliable access to power, battery backup, and generators
  • Experienced data center facility management
  • Disaster recovery resources
  • Extremely fast internet access at commodity or wholesale pricing, along with very high bandwith and low network latency
  • Professional security guards
  • Cheaper and more advanced climate control systems
  • Live equipment monitoring

Colocation building features

  • Fire prevention and fire suppression systems
  • Locked cabinets
  • Cages
  • Server racks, both 19-inch (data) and 23-inch (telecom)
  • Overhead cable trays
  • Advanced climate control, including cooling and humidity management
  • Electrical grounding
  • Robust physical security, including:
    • On-site guards
    • Video monitoring
    • Biometric security (including fingerprints and voice recognition)
  • Proximity and connectivity to the equipment of other data center customers, through "meet-me rooms" (especially important for telecom businesses and some cloud infrastructure providers)

Why use colo hosting?

There are quite a few reasons a company would lease or license colocation space rather than build its own data center.

One common reason is a lack of expertise in data center and building management. A software development company or a cloud infrastructure provider might possess the knowledge and experience to buy, configure, and run their own servers. They might have specific needs that make doing this (rather than consuming cloud services) the right choice. But they might not have experience with building security, electrical systems, HVAC, and other physical requirements.

Another main driver for the use of collocation centers is a certain hesitancy regarding capital expenditures. Renting is often found to be more expensive than buying in the long run, but it is almost always cheaper in a shorter time scale.


Colocation for reducing risk

Colocated server housing can also be used as a risk mitigation strategy.

A number of cost factors in self-hosting have significant variability, including: - The price of electricity and bandwidth - Property taxes - Labor costs (including the cost of recruiting and onboarding new replacement employees if key data center personnel leave) - Business equipment insurance

By entering into long-term, fixed-price contracts with colocation service providers, small and medium-sized business can ensure predictable data center expenses, greatly reducing their exposure to financial risk.

Drawbacks to colocation hosting

The biggest downside to colocation hosting is distance. There are times when direct, physical access to server equipment is needed. Depending on the location and volume of work, this can translate into travel costs and no small amount of aggravation.

Moreover, at a certain point, the economies of scale tip back in favor of building your own data center. If a large volume of servers will be needed for an extended or indefinite period of time, it may simply be more cost effective to house servers on company property.

There is also a certain amount of price risk involved. Several commodity pricing factors are included in the price of colocation hosting packages, including the cost of electricity and internet bandwidth. If these prices go down, you may be stuck paying higher prices because of a long-term contract that locks in certain rates. (Of course, this rate lock-in can also be a benefit if commodity prices go up, as noted above.)

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