If you’re a business leader exploring alternatives to managing your own on-premise data center, you’ve likely encountered the term “colocation.” But what exactly is colocation, and why are over 80% of enterprises planning to shut down their traditional data centers by 2025 in favor of more flexible solutions like colocation?
Simply put: Colocation (or “colo”) is a service where you rent space in a professional data center to house your own servers and IT equipment, while the facility provides power, cooling, security, and connectivity. Think of it as renting a secure, climate-controlled warehouse for your technology, but with enterprise-grade infrastructure that would cost millions to build yourself.
This comprehensive guide will help you understand everything about colocation—from the different types available to cost comparisons with alternatives—so you can make an informed decision about whether it’s right for your business.
Understanding Colocation Hosting: The Basics
What Is Colocation?
Colocation is a data center service where businesses rent physical space to house their own servers, storage devices, and networking equipment. Unlike cloud computing where you rent access to shared virtual resources, or traditional hosting where you lease servers owned by the provider, colocation lets you maintain ownership and control of your hardware while benefiting from professional data center infrastructure.
Key characteristics of colocation include:
- You own the hardware: Servers, storage, and networking equipment belong to your business
- Professional infrastructure: The facility provides power, cooling, security, and connectivity
- Shared costs: Infrastructure expenses are distributed among multiple tenants
- Physical control: You can access and modify your equipment as needed
How Colocation Works
The colocation process typically follows these steps:
- Space Selection: Choose the amount of space you need (rack units, cabinets, cages, or private suites)
- Equipment Installation: Install your servers and networking equipment in the assigned space
- Infrastructure Connection: Connect to power, networking, and cooling systems
- Ongoing Management: Maintain and manage your equipment while the facility handles infrastructure
The facility provides:
- Redundant power systems with backup generators and UPS units
- Advanced cooling systems to maintain optimal temperatures
- Physical security including biometric access and 24/7 monitoring
- Network connectivity with multiple carrier options
- Fire suppression and environmental monitoring systems
Types of Colocation Services
Understanding the different colocation models helps you choose the right fit for your business needs and budget.
Retail Colocation
Retail colocation is designed for small to medium-sized businesses that need professional data center services without massive space requirements.
Typical retail colocation includes:
- Space allocation: 1U to 42U rack units, quarter racks, half racks, or full racks
- Power requirements: Usually under 100 kW total
- Shared environment: Your equipment shares floor space with other customers
- Managed services: Often includes bundled support and maintenance options
- Flexible terms: Shorter contract periods with easier scaling options
Ideal for businesses that:
- Need 1-10 racks of equipment
- Require standard power densities
- Want managed services included
- Prefer predictable monthly costs
- Need flexibility to scale gradually
Pricing typically ranges from $79-$1500 per month depending on space, power, and location requirements.
Wholesale Colocation
Wholesale colocation serves large enterprises with substantial infrastructure needs and technical expertise.
Typical wholesale colocation includes:
- Large space allocation: Private cages, suites, or entire data hall sections
- High power requirements: 300 kW and above
- Dedicated environment: Private, secured areas separate from other tenants
- Custom infrastructure: Ability to design power, cooling, and networking configurations
- Longer contracts: Multi-year commitments with significant upfront investments
Ideal for businesses that:
- Need hundreds or thousands of servers
- Require custom infrastructure designs
- Have strict security or compliance requirements
- Possess in-house technical expertise
- Plan for predictable, long-term growth
Pricing varies significantly based on power, space, and customization requirements, often starting at $100+ per kW monthly.
Hybrid Colocation
Hybrid colocation combines multiple approaches to meet diverse business needs.
Common hybrid models include:
- Retail + Wholesale: Small retail presence with larger wholesale deployments
- Colocation + Cloud: On-premise equipment with cloud service integration
- Multi-location: Different colocation types across various geographic regions
- Managed hybrid: Combination of self-managed and provider-managed services
Colocation vs Other Infrastructure Options
Understanding how colocation compares to alternatives helps clarify when it makes the most business sense.
Colocation vs On-Premise Data Centers
| Aspect | Colocation | On-Premise |
| Capital Investment | Lower upfront costs | High upfront investment |
| Operational Costs | Shared infrastructure costs | Full facility management costs |
| Scalability | Easy expansion options | Limited by physical space |
| Expertise Required | Reduced staffing needs | Full IT and facilities teams |
| Time to Deploy | Weeks to months | Months to years |
| Compliance | Provider certifications available | Full responsibility |
| Risk Management | Shared infrastructure risks | Complete ownership of risks |
Colocation advantages:
- 60-80% reduction in total cost compared to building equivalent facilities
- Access to enterprise-grade infrastructure without million-dollar investments
- Geographic flexibility to place equipment closer to users or markets
- Improved reliability through redundant systems and expert management
On-premise advantages:
- Complete control over all hardware and software decisions
- No monthly facility costs once infrastructure is built
- Immediate physical access for maintenance and troubleshooting
- Custom security implementations tailored to specific requirements
Colocation vs Cloud Computing
| Aspect | Colocation | Cloud Computing |
| Hardware Ownership | You own equipment | Provider owns equipment |
| Customization | Complete hardware control | Limited to available options |
| Predictable Costs | Fixed monthly + power | Variable based on usage |
| Scalability Speed | Hardware procurement time | Instant resource allocation |
| Data Control | Complete data sovereignty | Shared infrastructure concerns |
| Compliance | Direct hardware control | Dependent on provider certifications |
| Performance | Dedicated resources | Shared resource environments |
When colocation makes more sense than cloud:
- High-volume, consistent workloads where cloud costs become expensive
- Strict compliance requirements needing hardware-level control
- Custom hardware needs not available in cloud environments
- Predictable long-term costs vs. variable cloud pricing
- Data sovereignty requirements in specific geographic locations
When cloud makes more sense than colocation:
- Variable or unpredictable workloads that benefit from elastic scaling
- Limited technical expertise for hardware management
- Rapid deployment needs without hardware procurement delays
- Small-scale operations where cloud economics are favorable
- Global distribution requirements across multiple regions
Business Benefits of Colocation
Cost Optimization
Colocation provides significant cost advantages over building and maintaining your own data center:
Reduced Capital Expenditure:
- No facility construction costs: Avoid $2+ million investments for basic data centers
- Shared infrastructure expenses: Power, cooling, and security costs distributed among tenants
- Economies of scale: Benefit from provider purchasing power for equipment and utilities
Operational Expense Benefits:
- Lower staffing requirements: Reduce need for specialized facilities management personnel
- Predictable monthly costs: Fixed colocation fees vs. variable utility and maintenance costs
- Reduced maintenance expenses: Provider handles facility upkeep and infrastructure updates
Average cost savings of 25-50% compared to equivalent on-premise infrastructure over three years.
Enhanced Reliability and Performance
Professional colocation facilities deliver superior uptime compared to typical business environments:
Infrastructure Redundancy:
- Multiple power grids with N+1 or 2N redundancy configurations
- Backup generators with automatic failover systems
- Advanced cooling systems with redundant HVAC and monitoring
- Multiple network carriers ensuring connectivity resilience
Typical uptime guarantees: 99.9% to 99.999% depending on facility tier rating.
Environmental Controls:
- Climate optimization: Precise temperature and humidity control for equipment longevity
- Air filtration: Clean, dust-free environments extending hardware life
- Fire suppression: Advanced detection and suppression systems protecting investments
Security and Compliance
Colocation facilities implement multi-layered security exceeding most business capabilities:
Physical Security Measures:
- 24/7 security personnel with professional training and protocols
- Biometric access controls limiting access to authorized personnel only
- Video surveillance with comprehensive monitoring and recording
- Restricted facility access with escort requirements and visitor management
Cybersecurity Infrastructure:
- Advanced firewalls protecting network perimeters
- Intrusion detection systems monitoring for unauthorized access attempts
- Regular security audits ensuring ongoing compliance and protection
- Incident response teams providing rapid threat mitigation
Compliance Certifications: Common certifications include SOC 2 Type II, ISO 27001, HIPAA, PCI DSS, and FedRAMP, depending on the provider and your industry requirements.
Scalability and Flexibility
Colocation provides growth options without major infrastructure investments:
Incremental Scaling:
- Rack-by-rack expansion: Add capacity as business needs grow
- Power upgrades: Increase electrical capacity without facility changes
- Bandwidth scaling: Adjust connectivity based on application requirements
- Geographic expansion: Leverage provider networks for multi-location presence
Technology Evolution:
- Hardware refresh cycles: Update equipment without facility constraints
- Emerging technology adoption: Implement new technologies in proven environments
- Service integration: Connect to cloud providers and managed services
Colocation Pricing and Cost Factors
Understanding colocation pricing helps you budget effectively and compare provider options.
Primary Cost Components
Space Charges:
- Rack units (RU): Typically $79-$200 per month for single servers
- Quarter racks: $200-$400 per month depending on location
- Half racks: $300-$600 per month for moderate deployments
- Full racks: $500-$1,200 per month for larger requirements
Power Costs:
- Metered billing: Pay for actual power consumption (common in wholesale)
- Flat rate billing: Fixed power allocation included in monthly fee
- Power density: Higher density equipment may require premium pricing
- Redundancy levels: N+1 or 2N power configurations affect costs
Network Connectivity:
- Cross-connects: $50-$200 per month for connections between providers
- Internet transit: $10-$100 per Mbps depending on volume and location
- Direct cloud connections: $50-$500 per month for AWS, Azure, Google connectivity
- Private networking: Custom pricing for dedicated connections
Geographic Pricing Variations
Colocation costs vary significantly by location:
Primary markets (major metropolitan areas):
- New York/New Jersey: $120-$200 per kW monthly
- Silicon Valley: $180-$250 per kW monthly
- Washington DC: $100-$150 per kW monthly
- Chicago: $90-$140 per kW monthly
Secondary markets offer cost advantages:
- Atlanta: $80-$120 per kW monthly
- Dallas: $85-$125 per kW monthly
- Phoenix: $75-$115 per kW monthly
Factors affecting regional pricing:
- Real estate costs: Higher property values increase facility expenses
- Power availability: Regions with abundant, cheap power offer better rates
- Network connectivity: Areas with multiple carriers provide competitive pricing
- Local regulations: Compliance requirements and taxes impact total costs
Hidden Costs and Considerations
Setup and Installation Fees:
- Smart hands services: $100-$200 per hour for technical assistance
- Installation support: $500-$2,000 for initial equipment setup
- Cross-connect installation: $200-$500 per connection
- Custom infrastructure: Variable costs for specialized requirements
Ongoing Service Charges:
- Remote hands: $75-$150 per hour for equipment management
- Bandwidth overages: Penalties for exceeding allocated network usage
- Additional services: Backup, monitoring, and managed services fees
- Contract modification fees: Costs for changing service levels
Selecting the Right Colocation Provider
Choosing the appropriate colocation provider significantly impacts your infrastructure success and costs.
Essential Evaluation Criteria
Facility Infrastructure:
- Power redundancy: Verify N+1 or 2N configurations meet your uptime requirements
- Cooling capacity: Ensure adequate cooling for your power density needs
- Network diversity: Evaluate carrier options and connectivity quality
- Security measures: Assess physical and cybersecurity implementations
- Compliance certifications: Confirm relevant industry certifications
Geographic Considerations:
- Latency requirements: Distance to users and business locations
- Disaster recovery: Geographic separation for business continuity
- Regulatory compliance: Data sovereignty and jurisdictional requirements
- Growth markets: Future expansion opportunities
Service Level Agreements (SLAs):
- Uptime guarantees: Look for 99.9% minimum with financial penalties
- Response times: 15-minute response for critical issues
- Resolution commitments: Maximum 4-hour restoration times
- Network performance: Latency and throughput guarantees
Provider Evaluation Process
Technical Assessment:
- Facility tours: Visit potential locations to evaluate infrastructure
- Reference checks: Speak with existing customers about service quality
- Capacity planning: Ensure provider can support your growth projections
- Integration testing: Verify network and service compatibility
Financial Evaluation:
- Total cost modeling: Include all fees and potential overages
- Contract flexibility: Evaluate terms for growth and changes
- Provider stability: Assess financial health and market position
- Cost comparison: Analyze multiple providers with identical requirements
Service Capabilities:
- Technical support: Evaluate expertise and availability
- Managed services: Additional services available for infrastructure management
- Cloud integration: Direct connections to major cloud providers
- Monitoring and reporting: Visibility into infrastructure performance
How QuoteColo Simplifies Colocation Selection
Navigating the complex colocation market can be overwhelming, especially when trying to compare providers, understand pricing, and evaluate technical capabilities. This is where QuoteColo’s specialized expertise becomes invaluable for businesses seeking the right colocation solution.
Our Matchmaking Approach
QuoteColo operates as a specialized connector between businesses needing colocation services and qualified providers across North America. Unlike traditional hosting companies that sell specific products, we focus on understanding your requirements and connecting you with the most suitable providers from our extensive network.
Our process eliminates common procurement challenges:
- No cold research required: Skip the overwhelming task of researching hundreds of providers
- Competitive quotes: Receive multiple options from competing facilities
- Expert guidance: Leverage our 20+ years of industry experience
- Vendor-neutral advice: Recommendations based on your needs, not vendor relationships
Extensive Provider Network
420+ Qualified Facilities: Our network spans North America with pre-vetted providers including:
- Regional specialists: Local providers with deep market knowledge
- National operators: Large-scale providers with multiple locations
- Tier-1 facilities: Premium data centers with advanced infrastructure
- Gartner-recognized providers: Industry-leading companies with proven track records
Service Coverage Includes:
- Retail colocation: From single servers to multiple racks
- Wholesale colocation: Large-scale deployments with custom requirements
- Managed services: Providers offering additional operational support
- Cloud integration: Facilities with direct cloud provider connections
Proven Track Record
2,400+ Successful Matches: We’ve helped businesses across diverse industries find optimal colocation solutions, including:
- Financial services: Banks and investment firms requiring high security
- Healthcare organizations: Hospitals and clinics needing HIPAA compliance
- Technology companies: Software and hardware companies scaling rapidly
- Manufacturing: Industrial companies implementing IoT and automation
Industry Expertise:
- 20+ years of data center industry experience
- Deep market knowledge of pricing, capabilities, and provider differences
- Technical understanding of infrastructure requirements and limitations
- Compliance expertise for regulated industries
The QuoteColo Advantage
Free Quote Service: We don’t charge clients for our matching services. Our compensation comes from successful provider referrals, aligning our incentives with finding you the best solution.
Vendor-Only Pricing Access: Our provider relationships often unlock pricing not available through direct contact or public channels, typically resulting in 10% average cost savings.
Streamlined Process:
- Submit your requirements: Provide details about space, power, location, and timeline needs
- Receive competitive quotes: Get multiple options within 24-48 hours
- Expert consultation: Discuss options and trade-offs with our team
- Make informed decisions: Choose the solution that best fits your needs and budget
Ongoing Support: Our relationship doesn’t end with provider selection. We provide guidance throughout the evaluation process and can assist with future needs as your business evolves.
Specialized Market Knowledge
Understanding Market Dynamics: Our team tracks pricing trends, capacity availability, and new facility openings across major markets, helping you make decisions based on current market conditions.
Provider Capabilities Assessment: We understand each provider’s strengths, limitations, and ideal customer profiles, ensuring recommendations align with your specific requirements.
Contract Negotiation Insights: While we don’t negotiate on your behalf, we provide guidance on standard terms, common pitfalls, and areas where flexibility may be available.
Making the Colocation Decision
Decision Framework
Use this structured approach to evaluate whether colocation aligns with your business needs:
Assess Your Current Infrastructure:
- Are you running out of space in your current facility?
- Do you need better power, cooling, or network capabilities?
- Are infrastructure maintenance costs becoming burdensome?
- Do you require geographic expansion or disaster recovery options?
Evaluate Business Requirements:
- How critical is hardware customization to your operations?
- What compliance or security standards must you meet?
- How predictable are your capacity growth projections?
- What level of control do you need over your infrastructure?
Analyze Cost Implications:
- What are your current infrastructure operating costs?
- How do colocation costs compare over 3-5 year periods?
- What capital investments would on-premise expansion require?
- How important is converting CapEx to OpEx for your organization?
Consider Technical Factors:
- Do you have staff capable of managing colocation equipment?
- How important is physical access to your hardware?
- What network connectivity requirements do you have?
- How quickly do you need to deploy or scale infrastructure?
When Colocation Makes Sense
Strong colocation candidates typically have:
- 10+ servers requiring professional data center environment
- Steady, predictable workloads that justify hardware investments
- Compliance requirements needing hardware-level control
- Cost sensitivity to cloud computing at scale
- Technical expertise for hardware management
- Geographic requirements for specific data locations
When Alternatives May Be Better
Consider cloud computing if you have:
- Variable or unpredictable workloads requiring elastic scaling
- Limited technical staff for hardware management
- Rapid deployment timelines without hardware procurement delays
- Small-scale operations where cloud economics are favorable
- Global distribution needs across multiple regions
Consider on-premise infrastructure if you have:
- Existing facility investments with available space and power
- Extreme security requirements beyond standard certifications
- Specialized hardware needs incompatible with shared facilities
- Regulatory restrictions preventing off-site data storage
- Very small deployments under 5 servers
Getting Started with Colocation
Planning Your Migration
Initial Assessment Phase:
- Inventory current infrastructure: Document all servers, storage, and networking equipment
- Capacity planning: Project growth needs for the next 3-5 years
- Requirements definition: Specify power, space, connectivity, and compliance needs
- Budget establishment: Set realistic cost expectations for comparison
Provider Selection Phase:
- Market research: Identify potential providers in target locations
- Request for proposals: Obtain detailed quotes from multiple providers
- Facility evaluations: Visit top candidates to assess infrastructure
- Reference checking: Speak with current customers about service quality
Implementation Planning:
- Migration timeline: Develop detailed project schedule with milestones
- Risk mitigation: Plan for potential issues during transition
- Testing procedures: Establish verification processes for new environment
- Rollback planning: Prepare contingency plans if issues arise
Migration Best Practices
Pre-Migration Preparation:
- Equipment audit: Ensure all hardware is compatible with colocation environment
- Network planning: Design connectivity architecture for new facility
- Documentation: Create detailed installation and configuration guides
- Staff training: Prepare team for new procedures and remote management
Migration Execution:
- Phased approach: Move non-critical systems first to minimize risk
- Testing protocols: Verify functionality before migrating critical systems
- Monitoring setup: Implement comprehensive monitoring from day one
- Communication plans: Keep stakeholders informed throughout the process
Post-Migration Optimization:
- Performance monitoring: Track system performance and identify improvements
- Cost analysis: Compare actual costs with projections and optimize
- Process refinement: Improve operational procedures based on experience
- Capacity planning: Plan for future growth and expansion needs
Conclusion
Colocation represents a strategic middle ground between the capital-intensive approach of building your own data center and the operational flexibility of cloud computing. For businesses with substantial infrastructure needs, specific compliance requirements, or predictable workloads, colocation often provides the optimal balance of cost, control, and capability.
The key advantages of colocation include significant cost savings compared to building equivalent facilities, access to enterprise-grade infrastructure without massive investments, and the ability to maintain hardware control while benefiting from professional data center management. With the colocation market projected to reach $102 billion by 2028, growing at 13.3% annually, this infrastructure model continues to gain traction among businesses seeking reliable, scalable solutions.
Success with colocation depends on careful planning and provider selection. Organizations must realistically assess their technical capabilities, growth projections, and operational requirements while evaluating providers based on infrastructure quality, service levels, and geographic presence. The complexity of this evaluation process often requires specialized expertise to navigate effectively.
For businesses exploring colocation options, QuoteColo simplifies the provider selection process through our network of 420+ qualified facilities and 20+ years of industry experience. Our vendor-neutral approach ensures recommendations align with your specific needs rather than provider preferences, while our competitive sourcing typically achieves 10% cost savings compared to direct provider contact.
The future belongs to organizations that strategically leverage infrastructure solutions that best align with their operational needs and growth objectives. Whether colocation serves as your primary infrastructure strategy or part of a hybrid approach combining on-premise, colocation, and cloud resources, the key is making informed decisions based on thorough analysis of your business requirements.
Ready to explore colocation options for your business? Contact QuoteColo today for a free consultation and competitive quotes from qualified providers across North America. Our expertise can help you navigate the complex colocation landscape and find the optimal solution for your specific needs.
Sources and References
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This article was researched and written by the QuoteColo team to help businesses understand colocation technology and make informed infrastructure decisions. For personalized guidance on your colocation needs, contact our experts at quotecolo.com.
