Colocation

What Is Colocation?

Colocation is a service where a business rents space for its own server, networking, and other computing hardware within a third-party data center facility. This arrangement falls under the broader category of Information Technology Infrastructure, providing companies with access to robust power, cooling, network connectivity, and physical security without the significant capital expenditure and ongoing maintenance costs associated with building and operating their own facilities. By opting for colocation, organizations can maintain ownership and control over their hardware while leveraging a specialized provider's infrastructure. Colocation is often chosen for its balance between control and outsourced operational efficiency.

History and Origin

The concept of colocation evolved as computing infrastructure grew from simple mainframe rooms into complex, interconnected data center environments. In the mid-20th century, early computing systems like the IBM 704 were enormous and required dedicated rooms with specialized cooling and power systems, leading to the creation of rudimentary data centers within organizations.¹¹ These "Big Iron" computers were costly and labor-intensive to operate.¹⁰

As the internet matured in the 1990s, the demand for reliable network access and specialized environments for IT equipment surged. The proliferation of server technology and the birth of client-server computing models meant that maintaining in-house IT infrastructure became increasingly complex and expensive for many businesses.⁹ This era saw the rise of colocation facilities, where companies could rent space to house their servers within a shared data center environment, benefiting from shared infrastructure and improved network connectivity.⁸ Companies like Digital Realty, founded in 2004, emerged to specifically address this growing need by acquiring and operating large-scale data center properties.

Key Takeaways

• Colocation involves housing an organization's privately owned hardware within a third-party data center.
• It provides access to enterprise-grade infrastructure, including power, cooling, and security, without requiring the substantial upfront investment of building a private facility.
• Companies retain full ownership and control over their physical hardware and data when utilizing colocation services.
• Colocation is a flexible solution, allowing businesses to scale their IT infrastructure by renting additional space and power as needed.
• It helps reduce operational risks related to power outages, cooling failures, and physical security breaches that might affect an on-premises setup.

Interpreting Colocation

Interpreting the benefits of colocation largely revolves around evaluating its impact on a business's operational efficiency, cost management, and risk mitigation. For many organizations, particularly those requiring high availability and specialized environments for their hardware, colocation offers a compelling middle ground between owning and managing an entirely in-house data center and fully migrating to cloud services.

By choosing colocation, a business can assess the quality of the third-party provider's infrastructure, including levels of redundancy for power and cooling, and guarantees for uptime. Providers often adhere to industry standards, such as those set by the Uptime Institute, which classify data centers into Tiers (I to IV) based on their infrastructure reliability and fault tolerance.⁷,⁶ A higher Tier classification indicates a more resilient and continuously available environment, which is crucial for applications that cannot tolerate downtime.⁵

Hypothetical Example

Consider "Alpha Financial Services," a growing fintech startup that needs robust infrastructure for its trading algorithms and customer data. Alpha Financial Services has outgrown its small server room and faces challenges with power stability, cooling, and maintaining optimal network connectivity. Building a new, dedicated data center is prohibitively expensive and would divert significant capital expenditure from its core business.

Instead, Alpha Financial Services decides to utilize colocation. They identify a colocation provider that offers space in a Tier III facility, guaranteeing high availability and redundant systems. Alpha Financial Services purchases its own specialized trading servers and networking equipment. They then transport this hardware to the colocation facility.

At the facility, Alpha Financial Services rents a full cabinet, plugs in its servers, and connects to the provider's high-speed internet backbone. The colocation provider takes responsibility for the physical facility, including providing consistent power, maintaining optimal temperature and humidity, and ensuring robust physical security. Alpha Financial Services retains full control over the software, operating systems, and applications running on its servers, managing them remotely. This allows Alpha Financial Services to operate its latency-sensitive trading platform with enhanced reliability and performance, without the burden of managing data center logistics.

Practical Applications

Colocation plays a vital role across various sectors, especially where direct control over hardware and minimizing network latency are critical.

• Financial Markets: In financial services, colocation is paramount for high-frequency trading firms and exchanges. Placing trading servers within the same data center as an exchange's matching engine, or even in the same rack, can shave milliseconds off trade execution times, which can translate into significant competitive advantages. Nasdaq, for example, offers colocation services to provide participants proximity to the speed and liquidity of its U.S. markets, allowing them to reduce latency and network complexity.⁴,³
• Content Delivery Networks (CDNs): CDNs utilize colocation to strategically place servers closer to end-users globally. This reduces content loading times and improves the user experience by enhancing bandwidth and minimizing latency in content delivery.
• Gaming and Media: Online gaming platforms and media streaming services often rely on colocation to host their servers, ensuring low latency and high scalability for millions of simultaneous users.
• Disaster Recovery and Business Continuity: Companies use colocation facilities as part of their disaster recovery strategies. By housing redundant systems in geographically separate colocation sites, businesses can ensure continuity of operations even if their primary data center experiences an outage.

Limitations and Criticisms

While colocation offers significant advantages, it also comes with certain limitations and considerations. One primary aspect is that colocation still requires a substantial initial capital expenditure for purchasing and configuring the hardware. Unlike subscription-based cloud services, the client must buy and own the servers, storage, and networking equipment outright.

Furthermore, ongoing management of the hardware, including maintenance, upgrades, and troubleshooting, remains the client's responsibility, even though the physical environment is managed by the colocation provider. This can lead to significant operating expenditure related to IT staff, equipment refresh cycles, and potentially travel to the facility for hands-on work. While the colocation provider ensures the physical infrastructure's uptime, any issues arising from the client's own hardware or software configuration fall outside the provider's scope. This shared responsibility model can sometimes lead to complexities in incident response and problem diagnosis.

Another consideration is that colocation can be less flexible for rapid, on-demand scalability compared to true cloud computing models. While additional space or power can be rented, it's not as instantaneous as spinning up new virtual machines in a cloud environment. For businesses with highly fluctuating resource demands, this can be a drawback.

Colocation vs. Cloud Computing

Colocation and cloud computing are both popular strategies for housing IT infrastructure, but they differ fundamentally in terms of ownership, control, and service model. The National Institute of Standards and Technology (NIST) defines cloud computing based on essential characteristics like on-demand self-service, broad network access, resource pooling, rapid elasticity, and measured service, typically delivered through service models like Infrastructure as a Service (IaaS).²,¹

The key distinction lies in the level of control and responsibility. With colocation, a business maintains direct control over its physical assets, which can be crucial for specific regulatory requirements or highly customized hardware needs. Cloud computing, conversely, abstracts away much of the underlying infrastructure, offering greater flexibility and rapid scalability at the expense of direct hardware control.

FAQs

What kind of businesses use colocation services?

Businesses that require high performance, low latency, enhanced physical security, or have specific regulatory requirements often use colocation. This includes financial services, content delivery networks, gaming companies, and enterprises needing robust disaster recovery solutions.

Is colocation more secure than hosting servers in my own office?

Generally, yes. Colocation facilities are purpose-built data centers with advanced security measures like biometric access controls, 24/7 surveillance, trained security personnel, and sophisticated fire suppression systems, far exceeding what most individual offices can provide.

What is the difference between colocation and a private cloud?

Colocation provides space for your physical hardware, which you own and manage. A private cloud, while offering dedicated resources, is typically a virtualized environment where the underlying hardware is owned and managed by a third-party provider or by your own IT department within your own data center, providing a cloud-like experience without sharing infrastructure with other tenants.

Does colocation include IT support?

Colocation typically provides "hands and eyes" support for basic tasks like rebooting servers or visually checking indicators, but comprehensive IT support for your hardware, operating systems, or applications is generally not included. Clients are responsible for managing their own equipment, though many providers offer additional managed services for a fee.