Colocation is a type of data center offering, which has a different definition and meaning than other categories of data centers, particularly as it relates to services and pricing. Also known as retail colocation, these data center facilities contrast to wholesale and on-premises configurations.

As a whole, colocation data centers are move-in ready, physically secure buildings with power, cooling, and networking capabilities to support critical IT enterprise applications. Colocation capacity is offered through cabinets, cages, and private suites.

Beyond the definition and meaning of colocation, Dgtl Infra’s analysis focuses on making the distinction between colocation vs cloud, identifying who uses colocation, determining what the benefits of colocation are, and ascertaining who the top colocation data center providers are.

What is Colocation? – Definition and Meaning

Colocation, also known as colo, is the provision of turn-key data center space to multiple customers, within the same data halls, for the purposes of hosting IT infrastructure, including servers.

What is Colocation in a Data Center?

A colocation data center is a physical facility that offers space, power, cooling, networking, and security to host servers, storage, networking equipment, and other IT infrastructure for enterprises. This capacity is sold by a colocation data center provider, to customers, in the form of cabinets, cages, or private suites.

These retail colocation data centers serve customers which have individual requirements of less than 1 megawatt (MW) of power capacity and deployments sizes ranging from 500 to 10,000 square feet.

Colocation data centers enable customers to increase or decrease their use of space, power, connectivity, and services, as their requirements expand or contract.

How do Colocation Data Centers Work?

Colocation data centers work with important distinctions and definitions between the roles of provider and customer:

Provider

Colocation data center providers are responsible for the day-to-day operation of the facility, which includes providing adequate power capacity, cooling, security, and access to telecommunications carriers.

Customer

Customers of a colocation data center are responsible for maintaining and operating their own equipment, housed in the cabinets, cages, or private suites within the data center. More specifically, a customer will purchase and own its physical servers and networking equipment, which includes switches, storage devices, routers, and fiber transmission gear. Said differently, the colocation data center provider is not renting servers to its customers.

Next, the customer will install their servers and networking equipment at the colocation provider’s data center. In many instances, colocation providers will offer installation assistance (see below), but normally this is the customer’s responsibility.

What are Colocation Services?

Colocation data centers offer space, power, connectivity / cross connect, and managed services:

Space

Colocation data centers house the IT infrastructure of customers in configurations including cabinets, cages, and private suites:

  • Cabinet: commonly 84 inches (7 feet) in height, cabinets are suitable for entry-level server colocation and networking deployments. As a reference point, a small deployment could be 1 cabinet, whereas a medium-sized deployment would be 75 cabinets
  • Cage: allows for customization of a secured portion of a colocation provider’s facility to support the specific requirements of a deployment. Cages can either be shared (less than 5 full cabinets) or private (minimum of 5 full cabinets)
  • Private Suites: area that is walled-off from the rest of a data center, which can be configured to the specifications of a customer, while offering more autonomy, privacy, and security

Power

Colocation data centers offer customers high power availability, including backup power, in case of an outage. The facility’s power systems are: electrical backup generators, batteries, power distribution unit (PDU), uninterruptible power supply (UPS), switchgear / transformers.

READ MORE: What are the Components of Building a Data Center?

Connectivity / Cross Connect

Colocation data centers provide connectivity services that enable customers to connect their IT infrastructure for the purposes of exchanging traffic and accessing cloud services. For example, these connectivity services include direct, high-speed connections to several telecommunications carriers, internet service providers (ISPs), and cloud service providers.

Often, these direct connections are installed and managed through physical connections, known as a cross connect. Cross connects are physically secured in dedicated meet-me rooms (MMRs), which are spaces generally comprising 5,000 square feet or less.

READ MORE: Cross Connects – Interconnection Services in Data Centers

Direct connections allow customers to reduce costs and improve performance associated with the exchange of Internet, content, and cloud data traffic.

Managed Services

Colocation providers often deliver a number of managed services, meaning services like network monitoring, systems management, and engineering support services. These managed services comprise server reboots, telecommunications support, equipment racking and stacking, operating system loading, and magnetic tape backups of critical data.

Additionally, certain managed services help customers simplify and accelerate their colocation data center deployment. For example, remote hands help customers install, operate, and manage their data center deployments.

Colocation Data Center Pricing

Colocation services are typically priced according to the physical space that a customer occupies in the data center, how power is delivered to the customer’s equipment, as well as a one-time installation fee.

Space

Colocation data center space is sold on the basis of individual cabinets or cages, typically on short-term, 1 to 3 year license agreements, as opposed to long-term leases. Customers pay colocation service fees, on a monthly basis, for their cabinet or cage space in these colocation facilities.

Power

In terms of power, colocation customers pay under either a breakered-amp or sub-metered power pricing definition:

  • Breakered-Amp: customer pays a fixed monthly fee for contractually committed amounts of power per month. Importantly, the customer must pay in full, regardless of how much power is actually used. Breakered-amp power is sold in shared areas of data centers and is included in the total cabinet price
  • Sub-Metered: customer pays monthly for their actual power usage in arrears on a metered basis. This includes the power attributable to the customer’s data center equipment as well as an allocation for the power used to provide cooling, lighting, and security for the data center. Sub-metered power is sold to customers that contract for dedicated space, such as a cage or private suite, for which they are charged on a per square foot basis

Installation

Installation fees are one-time in nature and relate to a customer’s initial deployment of equipment and IT infrastructure into a colocation data center. The colocation provider performs professional services, which are typically billed on the first invoice sent to the customer.

Retail Pricing – Rental Rates in Major U.S. Markets

While retail colocation pricing can vary considerably, below are examples of low and high rental rates for <250 kW deployments. The retail pricing examples are shown for the top 5 data center markets in the United States, ordered by the commissioned power capacity in colocation environments definition. Specifically, these markets include Northern Virginia, Silicon Valley, Chicago, Dallas-Fort Worth, and Phoenix.

Rental Rates for <250 kW Deployments – per kW per month
MarketLowHigh
Northern Virginia$125$175
Silicon Valley$175$300
Chicago$115$200
Dallas-Fort Worth$135$250
Phoenix$150$300

READ MORE: Data Centers in Virginia – Ashburn, Loudoun

What is Colocation vs Cloud?

Customers can and often do settle the decision between colocation vs cloud by utilizing both environments. Different use cases may be better suited to colocation data centers (e.g., hosting important databases) or the cloud (e.g., web and mobile applications that require scalability). Additionally, it is a growing trend for customers to migrate, over time, from colocation data centers to the public cloud.

READ MORE: Top 10 Cloud Service Providers Globally in 2022

Colocation vs Cloud – Key Differences

Key differences between colocation vs cloud are summarized in the following table, with their definition and meaning detailed further below:

CategoryColocationCloud
PowerSpecified kW included in contractBundled with service
Space500 to 10,000 square feetCapacity on managed virtual servers
Server OwnershipCustomerService Provider
Upfront CostsHigherLower
Shared ComputeNoYes
Customer Access to FacilityYesNo
  • Power: in colocation environments, customers pay for a specified amount of power, either as a fixed monthly fee or on a metered basis. Whereas cloud service providers bundle power costs within their pay-per-use pricing framework
  • Space: in a colocation facility, customers contract for space directly with the data center provider. In contrast, in the cloud environment, compute, storage, and database services are deployed virtually into specific regions and availability zones, where the cloud service provider has multiple data centers

READ MORE: Amazon Web Services (AWS) – Regions and Availability Zones

READ MORE: Microsoft Azure – Regions and Availability Zones

  • Server Ownership: in a colocation data center, the customer purchases its own servers. Whereas in a cloud environment, the cloud service provider owns the servers
  • Upfront Costs: cloud computing eliminates the upfront capital expenditures of purchasing physical servers and networking equipment, which is needed for colocation deployments
  • Shared Compute: colocation is shared space within a data center, but the resources within cabinets and cages are not shared, they are dedicated to the enterprise that owns them. Cloud service providers offer shared public resources virtually
  • Customer Access to Facility: cloud service provider data centers are not directly accessible to customers, which means customers cannot install their own servers in these facilities. Therefore, customers typically make direct connections to the cloud through colocation, via cloud on-ramps

What are Cloud On-Ramps?

In colocation facilities, enterprises can directly connect to cloud service providers such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud, through cloud on-ramps. A cloud on-ramp is established when a cloud service provider contracts for a small area, of less than 20 cabinets, within a colocation data center to establish a point-of-presence (PoP). In turn, enterprises gain quick and direct access to these PoPs within the colocation facility.

Who Uses Colocation?

Colocation customers typically rent smaller amounts of space, in the form of cabinets or cages, but often require high network connectivity densities and cross connect services. These colocation customers encompass a wide range of enterprises, under the following broad definitions:

  • Small- and medium-sized enterprises seeking to outsource their data center requirements
  • Large enterprises with significant IT expertise and requirements
  • Software-as-a-Service (SaaS) and cloud service providers (CSPs)
  • Internet media & content and social networking platforms
  • Shared, dedicated, and managed hosting providers
  • Telecommunications carriers and network service providers
  • Content delivery networks (CDNs)
  • Government agencies

What are the Benefits of Colocation?

Colocation is an optimal solution for enterprises who cannot afford, do not require, or do not have the expertise / desire to provide their own data center space, power, cooling, networking, security, and management.

At the same time, colocation offers a number of benefits related to availability (uptime), scalability, security, cost of ownership, connectivity, and hybrid cloud / multi-cloud:

Benefits of Colocation – Definition and Meaning
  • Availability (Uptime): availability of power, cooling, and internet / telecommunications connectivity is facilitated by having redundancy in the form of electrical backup generators, power components, cooling equipment, and fiber-optic networks. In turn, colocation providers deliver reliable data center services, meaning a high-degree of uptime

READ MORE: Data Center Tiers: What’s the Difference in Uptime?

  • Scalability: colocation providers offer customers many space, power, and cross connect configurations, which would not be available through their own on-premises data centers or server rooms. With colocation, customers can increase their space, power, connectivity, and geographic footprint, as their needs expand
  • Security: these data centers utilize a wide range of physical security features, such as on-site security guards 24 hours per day / 365 days per year, perimeter fencing, mantrap entries, video surveillance, biometric authorization, electronic access card scanners, smoke detection, and fire suppression systems
  • Cost of Ownership: as compared to managing an on-premises data center, outsourcing to a colocation facility lowers a customer’s total cost of ownership, since multiple suppliers are competing for the customer’s business within the data center. In turn, customers can reduce their costs for power, cooling, networking, and security. Additionally, customers can achieve tax benefits, such as low or no sales tax on equipment
  • Connectivity: carrier-neutral colocation facilities provide customers with direct access to telecommunications carriers, internet service providers (ISPs), cloud platforms, and IT service providers. This connectivity enables customers to optimize their data, applications, and computing workloads
  • Hybrid Cloud / Multi-Cloud: colocation data centers enable enterprises to shift to hybrid and multi-cloud environments through direct connections to cloud service providers within their facilities. However, cloud migration is a risk, meaning customers initially move their equipment to a colocation facility and then, at a later point in time, fully transition to the cloud

READ MORE: Hybrid Cloud – What is it? and How Does it Work?

Who are the Top Colocation Providers?

Below is an overview of the top 10 colocation providers, using the definition that they have a retail component to their operations, meaning that they serve smaller customer power capacity requirements within the same data halls:

  1. Equinix: operates 244 data centers, representing 339,200 cabinets of power capacity across 28.2 million square feet
  2. Digital Realty: operates 291 data centers comprising over 2 gigawatts of white space IT load and 35.8 million net rentable square feet
  3. CyrusOne: operated 56 data centers, representing 984 megawatts of power capacity across 5.09 million square feet of colo space. Portfolio metrics are prior to CyrusOne selling four data centers to DataBank
  4. QTS Realty: operates or owns development sites for 48 data centers, which span 8.3 million square feet
  5. Switch, Inc: operates 5 PRIMES (meaning data center campuses), which encompass 16 colocation facilities. The company’s portfolio represents up to 508 megawatts of power capacity and 5.1 million gross square feet (GSF)
  6. CoreSite / American Tower: operates 27 data centers comprising 225.6 megawatts of power capacity across 3.47 million square feet
  7. DataBank: operates 65+ data centers across 2.0 million square feet of raised floor space
  8. Cyxtera Technologies: operates 61 data centers, comprising 245 megawatts of power capacity across 1.85 million sellable square feet
  9. Flexential: operates 40 data centers comprising over 220 megawatts of power capacity and 3 million square feet
  10. Evoque Data Center Solutions: operates 31 data centers comprising over 170 megawatts of power capacity and 1.3 million square feet
Mary Zhang covers Data Centers for Dgtl Infra, including Equinix (NASDAQ: EQIX), Digital Realty (NYSE: DLR), CyrusOne, CoreSite Realty, QTS Realty, Switch Inc, Iron Mountain (NYSE: IRM), Cyxtera (NASDAQ: CYXT), and many more. Within Data Centers, Mary focuses on the sub-sectors of hyperscale, enterprise / colocation, cloud service providers, and edge computing. Mary has over 5 years of experience in research and writing for Data Centers.

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