Colocation (Colo) Explained

Colocation is a bet. You're wagering that your needs will stay predictable enough to justify owning depreciating assets instead of renting flexibility.

The deal: you buy servers, ship them to a professional data center, and pay monthly for space, power, cooling, and network connectivity. You own the hardware. They keep it running.

The Economics That Drive the Decision

Here's the math that matters:

A dedicated server rental costs $200/month—$2,400/year. The equivalent server purchased outright costs around $4,000. Colocation fees run $100-150/month for space, power, and bandwidth.

At month 27, you break even. Every month after that, you're saving $75-100 compared to renting.

Multiply by 10 servers over 5 years, and colocation saves tens of thousands of dollars. But only if your assumptions hold: that you'll actually need those servers, that they won't become obsolete, that nothing changes.

What You Get

Complete hardware control. You choose exact specifications—specific processors, particular storage configurations, specialized GPUs, custom network cards. No selecting from a provider's standard options.

Hardware ownership. When you're done with a server, you can repurpose it, sell it, or strip it for parts. Rented servers just disappear when you stop paying.

Predictable performance. You know exactly what's running on your machines because you control everything on them.

Data control. For compliance requirements demanding hardware ownership and strict lifecycle control, colocation provides it.

What You Give Up

Capital. Thousands of dollars per server, upfront, before generating any value. That money is now sitting in a data center instead of earning returns elsewhere.

Flexibility. Need more capacity? Purchase hardware, configure it, ship it, wait for installation. Need less? Your servers sit idle, depreciating.

Hardware hassle. When a drive fails at 2 AM, that's your problem. Diagnose remotely, order parts, arrange installation (or drive to the data center yourself).

Future optionality. The processors and memory you choose today are what you have until you buy new hardware. Needs change; servers don't.

Colocation Space and Pricing

Data centers measure space in rack units (U)—1.75 inches of vertical space in an equipment rack. A 1U server is thin; a 4U server is chunky.

You can rent:

• Individual rack units ($30-100/month per U)
• Partial racks (quarter or half)
• Full racks (42U, $500-2,000/month)
• Cages (private enclosed areas with multiple racks, for serious deployments)

Beyond space, you'll pay for:

• Power (flat fee or per-ampere—high-power servers cost significantly more)
• Bandwidth (often included at 1 Gbps, or metered for high-traffic applications)
• Remote hands ($50-150/hour for staff to physically touch your equipment)
• Cross-connects (one-time and monthly fees to connect to other networks in the facility)

When the Bet Pays Off

Established, predictable workloads. You know you'll need 10 servers for the next 5 years. The math works decisively in your favor.

High resource consumption. If cloud or rental costs would run thousands monthly, colocation's upfront investment recovers faster.

Specific hardware requirements. Specialized GPUs, particular storage systems, configurations no provider offers—you have to buy them anyway.

Existing hardware. You already own servers but lack suitable facilities. Colocation gives them a proper home.

When to Rent Instead

Variable needs. Traffic spikes and quiet periods? Cloud elasticity beats owned hardware sitting idle.

Rapid or uncertain growth. Buying ahead wastes capital; buying behind creates emergencies. Neither is good.

Limited capital. Colocation converts operational expense to capital expense. If cash is tight, rent.

Small scale. Below 5-10 servers, administrative overhead exceeds savings. The economics don't work.

No hardware expertise. Someone needs to specify, purchase, configure, and maintain this equipment. If that's not you, colocation becomes expensive.

Choosing a Facility

Tier rating (I through IV) indicates redundancy. Tier IV survives any single failure without downtime—and costs accordingly.

Location affects latency to users and how painful physical visits will be.

Network quality matters enormously. Multiple upstream providers, low latency, good peering arrangements.

Security ranges from basic to paranoid. Match it to your actual requirements.

Power and cooling must support your density. Verify before signing.

SLAs define what happens when things fail. Read them.

Hybrid Approaches

The smart play is often both:

Colocation for baseline, cloud for burst. Predictable workloads run on owned hardware; spikes overflow to cloud.

Colocation for storage, cloud for compute. Large datasets stay where storage is cheap; processing scales elastically.

Colocation for primary, cloud for disaster recovery. Geographic distribution without doubling hardware costs.