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. Data center colocation can transform the way companies manage their IT infrastructure, offering a flexible solution that can adapt to changing business needs.

Colocation in data centers provides a physically secure, move-in-ready facility equipped with power, cooling, and networking features to support essential enterprise IT applications. These data centers offer space in the form of cabinets, cages, and private suites to meet varying capacity needs.

Dgtl Infra’s analysis goes beyond the definition and meaning of colocation. It focuses on distinguishing between colocation and cloud, identifying the users of colocation, determining its benefits, and identifying the top colocation data center providers.

What is Colocation? – Definition and Meaning

Colocation, commonly referred to as colo, involves offering ready-to-use data center space to multiple customers. These customers share the same data halls and use the space to host their IT infrastructure, such as servers and networking equipment. The facility is secure, well-connected, and features built-in redundancies to minimize business disruptions.

Colocation Colo Server Facility Definition Define

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.

Collocation in Datacenters Cabinet Cage Rack Space Servers

Retail colocation data centers serve customers who have individual requirements of less than 1 megawatt (MW) of power capacity and deployment sizes ranging from 500 to 10,000 square feet. In contrast, wholesale colocation facilities serve larger customers who have individual requirements greater than 1 MW of power capacity and deployment sizes exceeding 10,000 square feet.

Data center colocation enables 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:


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.


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, colo providers will offer installation assistance, but normally this is the customer’s responsibility.

What are Colocation Services?

Colocation services provide space, power, connectivity via cross-connects, and managed services.

Co-location Service Facility Centre Network

Space and Facilities

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 physical security
Collocation Datacenters Cabinets Cages Rack Space Service

In a data center, rack space is the designated area within a mounting frame, known as a rack, where servers and IT hardware are installed. Racks are commonly placed inside larger, protective enclosures called cabinets. For additional security and customization, these cabinets can be organized into secure cages or even private suites.

READ MORE: Data Center Racks, Cabinets, and Cages – An In-Depth Guide


Data center colocation provides customers with high power availability, including backup power in case of an outage. The facility’s power systems include electrical backup generators, battery backup systems, power distribution units (PDUs), uninterruptible power supply (UPS) systems, and switchgear/transformers.

READ MORE: Data Center Power – A Comprehensive Guide

Connectivity and Bandwidth

Colocation data centers provide high-speed, reliable, and scalable connectivity and bandwidth services. These facilities allow customers to connect their servers and IT equipment to the internet and other networks, enabling the exchange of traffic and access to cloud services. Included among these services are direct, high-speed connections to multiple telecommunications carriers, internet service providers (ISPs), and cloud platforms.

Typically, these direct links are established and maintained using physical connections called cross connects. These cross connects are securely housed in dedicated meet-me rooms (MMRs), which are specialized spaces usually no larger than 5,000 square feet. Such interconnection services enable companies to establish cross connects within the data center, connecting them to both domestic and international carriers.

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. Commonly referred to as “managed colocation“, 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 instance, the “remote hands” service assists customers in the installation, operation, and management of their data center infrastructure.

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.


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.


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 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. Specifically, these markets include Northern Virginia, Silicon Valley, Chicago, Dallas-Fort Worth, and Phoenix.

Rental Rates for <250 kW Deployments – per kW per month

Northern Virginia$140$195
Silicon Valley$195$330
Dallas-Fort Worth$150$275

What is Colocation vs Cloud?

Customers often make the decision between colocation and cloud computing by utilizing both environments. Different use cases may be better suited for colocation data centers – such as hosting important databases – or for the cloud, which is ideal for web and mobile applications requiring scalability. Additionally, there is a growing trend of customers gradually migrating from data center colocation to the public cloud.

Colocation versus Cloud Platforms

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:

PowerSpecified kW included in contractBundled with service
Space500 to 10,000 square feetCapacity on managed virtual servers
Server OwnershipCustomerService Provider
Shared ComputeNoYes
NetworkDedicated bandwidthShared bandwidth
Customer Access to FacilityYesNo
Upfront CostsHigherLower
BillingFixed monthly feePay-as-you-go model
  • Power: In colo 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 data center operators. 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
  • 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
  • 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 platforms offer shared public resources virtually
  • Network: In colocation, customers have dedicated bandwidth but are responsible for configuring and managing the network, while in cloud, they have access to shared bandwidth but the provider manages the network infrastructure
  • Customer Access to Facility: Cloud 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 colo facilities, via cloud on-ramps
  • Upfront Costs: Cloud computing eliminates the upfront capital expenditures of purchasing physical servers and networking equipment, which is needed for colo deployments

Who Uses Colocation?

Who Use Co Lo Data Centre Hosting Services

Colocation customers typically rent smaller amounts of space, in the form of cabinets or cages, but frequently need robust network connectivity and cross connect services. These colocation customers encompass a wide range of organizations, under the following broad definitions:

  • Small- and medium-sized enterprises looking to outsource their data center requirements
  • Large enterprises with specialized IT expertise and demands
  • Software-as-a-Service (SaaS) and cloud service providers (CSPs)
  • Online media, content creators, and social networking platforms
  • Providers of shared, dedicated, and managed hosting services
  • Telecommunications carriers and network service providers
  • Content delivery networks (CDNs)
  • Government agencies

Colocation is a service designed for organizations that lack the resources and operational expertise to maintain their own data center, but still wish to reap the associated benefits.

What are the Benefits of Colocation?

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

Benefit Advantage Colocation Meaning

At the same time, colocation offers a number of benefits for business operations 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
  • 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 data center 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 same building. In turn, customers can reduce their data center 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 and Multi-Cloud: Colocation facilities enable enterprises to shift to hybrid cloud and multi-cloud environments through direct connections to cloud service providers within their facilities. However, cloud migration is a potential risk, meaning customers initially move their equipment to a data center colocation facility and then, at a later point in time, fully transition to the cloud

Frequently Asked Questions

Who are the Top Colocation Providers?

The top colocation providers are Equinix, Digital Realty, NTT Global Data Centers, CyrusOne, KDDI/Telehouse, Centersquare, CoreSite, QTS Data Centers, Switch, Inc, and Iron Mountain. These data center colocation providers offer specialized facilities where businesses can house their servers and other hardware. The definition or meaning of this service encompasses the rental of physical space, network connections, and cooling systems to maintain optimal performance.

READ MORE: Top 250 Data Center Companies in the World

What are Colocation Servers?

Colocation servers are computers or systems that are owned by an individual or organization but are housed in a third-party data center facility. The data center provides the necessary infrastructure, such as space, power, cooling, and networking, while the server owner maintains control over the hardware and software. Customers typically rent space for their server hardware by the rack, cabinet, cage, or private suite, depending on their needs.

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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