What Is Colocation Hosting and When Should You Use It?

Posted on August 14, 2023 | Updated on August 14, 2023

Effective website hosting makes the most of many technical considerations. One of the most critical of these decisions is deciding how to approach data center management. Many businesses frame this consideration as a choice between private, on-premise hosting and entirely outsourced services, but colocation hosting is an option, too.

Colocation doesn’t receive as much attention as other methods but can be the most cost-effective solution in some scenarios. Here’s a closer look at the practice and when it may be right for your business.

What Is Colocation Hosting?

Colocation hosting is a service where clients rent space in a data center they share with other businesses. Unlike a conventional third-party data center setup, however, the clients have total ownership over their own servers and software.

Many companies embrace cloud computing because outsourced data centers can lower IT costs and offer more flexibility. Still, many others run into management or customization issues if they have specific hardware or software needs. Colocation provides a helpful middle ground to balance the flexibility of the cloud with the ownership advantages of an on-premise setup.

In a colocation setup, the data center owner provides the physical space, electricity, cooling infrastructure, backup systems and network resources. The clients then rent this space to host servers they own and manage. 

Advantages of Colocation Hosting

Because colocation hosting combines aspects of on-premise data centers and managed services, it offers a similar combination of their benefits. Here are a few of the most significant advantages.

Improved Security

Security is a top concern for the cloud, with 63% of IT professionals citing cyber threats as the primary barrier to their cloud strategy. Colocation can address those concerns by providing more control and increased physical safety.

In a colocation setup, businesses manage their own servers, so they can tailor their cybersecurity controls to meet their exact specifications. In a conventional cloud environment, companies often have to choose from a vendor’s security tools or turn to another third party for additional protection. By retaining complete ownership over their hardware and software, they can regain control of their security.

Colocation centers also improve security by offering more physical security than on-premise servers can likely manage. Colocation hosts often provide 24-hour surveillance, biometric access and advanced alarm systems to prevent unauthorized physical access to servers.

High Reliability

Another benefit of colocation hosting is that it can improve server reliability. More than half of all data center outages cost $100,000 or more, with some even reaching millions of dollars, so improving uptime is crucial for any business.

In colocation, the host is responsible for all energy, cooling and bandwidth-related concerns. As a result, clients don’t need to manage these complex considerations themselves, reducing the risks of human error-related outages. These data centers also offer advanced infrastructure that smaller businesses may be unable to afford, further improving reliability without excessive costs.

Colocation also enables better disaster recovery systems. Because businesses aren’t hosting servers on their own premises, they can store data in locations that aren’t prone to natural disasters or power grid failures.

Reduced Ongoing Costs

Colocation can also lower an organization’s IT costs over time. Businesses still have to purchase their server hardware and pay an ongoing fee for their space in the data center, but they don’t have to worry about energy or network costs.

Data center energy costs can be astronomical, considering these facilities use 10 to 50 times the power per square foot of a typical commercial building. Providing sufficient network infrastructure to manage all a company’s servers can be similarly expensive. Consequently, by outsourcing these concerns, businesses stand to save a considerable amount.

Colocation also means companies avoid the upfront costs of building a data center they’d have with an on-premise solution. Businesses can also save money in labor costs, as the host will handle all data center staffing.


Similarly, colocation hosting makes it easier to scale up or down as necessary. Effective website hosting requires adaptation to shifting trends, but expanding on-premise data center capacity is a slow, expensive process. Colocation centers offer a more cost-effective solution.

In some colocation facilities, businesses may have to buy new servers to expand. However, they won’t need to spend time and money on additional infrastructure to support this new hardware, as the data center will already have sufficient resources. As a result, they can grow faster and with less investment.

Some colocation centers also offer vendor-neutral services that can connect clients’ servers to other data centers and public clouds. In these cases, businesses can expand without additional hardware costs, as they can use remote third-party services to grow.

Disadvantages of Colocation Hosting

Of course, colocation comes with some downsides, too. It’s important to recognize these to make the most informed decisions about what’s best for your business.

Limited Control

Compared to entirely on-premise alternatives, colocation hosting means a sacrifice in control. While businesses still manage their own servers, they can’t tailor other aspects of the data center — like its power and cooling — to their preferences. That can benefit companies with less data center experience, but others may find it restricting.

Being in charge of off-site hardware can also introduce some unique management challenges. If any servers require in-person servicing, employees must drive to the colocation center to perform maintenance. That can be time-consuming and costly if it happens often enough.

High Initial Costs

Despite having lower ongoing costs, colocation can introduce higher upfront expenses. These are still lower than building your own on-premise data center, but they can be significantly higher than an entirely outsourced operation.

With a managed service provider, businesses only have to pay a monthly fee, but colocation requires the upfront investment of the servers themselves. This does give companies the freedom to look for hardware within a certain price point, but this technology is often expensive. Considering IT spending already accounts for as much as 18% of companies’ revenue, that can be an obstacle for smaller businesses.

When Is Colocation Best for Your Business?

Given these pros and cons, colocation hosting is ideal in some situations but not all. If you’re considering it for your business, start by outlining your budget and specific requirements, then compare those to these benefits and disadvantages.

Generally speaking, colocation is best for medium or large businesses or those experiencing steady growth. That way, the initial investment is less impactful, and these companies can take advantage of the practice’s scalability. Smaller companies or those with less IT management experience may be better off with an entirely outsourced hosting service instead.

Keep in mind that you may be able to take a hybrid approach. As many as 98% of enterprises use at least two cloud providers, which helps manage costs. You could use a colocation facility for some data or sites while using a public cloud or other managed service for the rest to balance costs and performance.

See if Colocation Hosting Is Right for Your Company

Colocation hosting offers a unique approach to cloud computing that many companies may overlook. Depending on your situation and needs, it could be a cost-effective way to boost server performance and expand your digital resources.

Making the best decisions in this area relies on an understanding of all your options. When you know what each path can offer you, you can find the best solution for your specific needs.

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