Colocation space is where multiple businesses store their online data and servers all in the same area in order to be more efficient. Companies outsource all of their data to a colocation space, where a third party manages large server farms. This can be in the form of traditional web hosting, or can be a partnership between a few private businesses. While colocation does theoretically introduce new risks, usually the point is that it is run by a private company which is reliable and so the actual overall risks are reduced. Colocation has many benefits. Most noticeably, it is vastly more economical. Because server farms are very expensive and require many special accommodations (like special cooling a fire prevention systems), being able to distribute this cost among many businesses instead of each individual business having to build their own server storage reduces the cost.

There are also security benefits - as long as a reliable colocation center is used, the data will be protected both physically and digitally, and the individual companies who share the space do not have to worry about data safety. Colocation facilities are often used by telecommunications companies to share traffic without having to pay each other for the mutual exchange of traffic. Colocation is also very popular among smaller businesses. Managed hosting is a form of colocation (unless the business buys dedicated servers), as most web hosting companies put many websites and data sets together on the same servers to reduce costs. Users of these low-end hosting plans may not ever directly be involved with the colocation centers, but may instead be managed entirely remotely using FTP or a similar protocol to send, store, and receive data.

Colocation spaces are specially designed buildings which have to have many accommodations for the large amount of servers that they have. Computers produce a great deal of heat, so colocation centers must have very powerful cooling systems to keep their servers running efficiently. The also usually have fire protection schemes to protect them from an overheating computer going awry. Because of all the special effort and design put into building a Colocation space, they make great options for storing your website or other server data. Colocation spaces have all the normal benefits of outsourcing and doing things in bulk, and are great alternatives to self-hosting websites.