Operating an in-house server room has become increasingly costly due to rising energy prices and hardware expenses.
Instead of making large upfront investments, you can lease space and colocate your servers in a professional data center. You own the hardware, while the data center provides power, cooling, network connectivity, and security.
Learn how colocation works and why it's a practical solution for housing IT infrastructure.
How Does Colocation Work?
Colocation is a data center service model where businesses lease physical space in a third-party facility to house their privately owned servers and network equipment.
The tenant transports their hardware to the data center and is responsible for setting up and configuring the servers. Therefore, the provider does not physically handle the tenant's equipment unless they request additional assistance.
This model allows organizations to retain full control over their hardware while the data center ensures uninterrupted server operation in a highly secure, high-performance environment.
Pricing depends on the required rack space, power allocation, network connectivity, and level of service. Tenants usually pay a monthly subscription, with discounts available for long-term commitments and prepayments.
Colocation Key Features
Companies choose to house their servers in a professionally managed environment for the reasons you can find in the sections below.
Redundant Power
Servers don't work without electricity, and an unexpected power outage or fluctuation can bring operations to a grinding halt. So, you need a stable and diversified power supply to prevent data loss, financial setbacks, and reputational damage.
Colocation data centers offer:
| Uninterruptible power supply (UPS) | A battery-powered system provides instant, short-term power to keep servers running until generators take over. |
| Generator backup | Diesel or natural gas generators activate and replace UPS systems during a prolonged outage. |
| Multiple power grids | Larger data centers are connected to multiple utility grids with Automatic Transfer Switches (ATS) that switch to an alternate power source if one grid fails. |
Note: Facilities are classified into data center tiers (Tier 1-4) based on design, redundancy, and uptime guarantees.
High-Speed Internet Connectivity
Data centers maintain direct, high-speed connections to large internet service providers (ISPs). This allows them to handle massive bandwidth at high speeds with low latency.
Carrier-neutral data centers provide access to multiple ISPs. Therefore, tenants can select their preferred network based on cost, coverage of key markets, number of hops, and redundancy.
Organizations that colocate servers in a data center benefit from the following:
| High network speed | While 10-40Gbps connections are common for colocation and cloud services, high-end facilities increasingly provide 100-400Gbps+ connections for AI, cloud, and high-performance computing (HPC) workloads. |
| Low latency | Many providers operate multiple data centers across different regions. The facilities are near major population hubs and financial centers, minimizing the distance between servers and clients to reduce latency. |
| Direct cloud on-ramps | Private fiber-optic links to AWS, Google Cloud, and other cloud providers. Tenants can use dedicated on-ramps to bypass the public internet and avoid congestion. |
Scalable Facilities
Colocation tenants can quickly scale their resources up or down within the data center.
This is an invaluable feature for businesses with fluctuating seasonal demand, expansion plans, or companies adding server resources to support their software development cycles.
Tenants can lease partial or stand-alone cabinets, while larger facilities offer cages or even fully enclosed private suites to restrict access to sensitive equipment. Colocation data centers provide:
| Flexible rack space | Tenants can rent the exact amount of server space they need based on predefined rack unit options. A typical colocation offering includes 1U (single server), Quarter Cabinet (10-12U), Half Cabinet (20-22U), and Full Cabinet (40-42U). |
| Room for growth | Colocation data centers have ample space to support infrastructure expansion. Tenants can scale IT resources without worrying about outgrowing their space or relocating hardware. |
| Higher rack density | Providers are increasing the average power and cooling capacity per rack (rack density). This means tenants can handle higher workloads without needing to pay to expand their physical footprint. |
24/7 Technical Support
Servers must remain operational at all times, which can be challenging when they are in a remote, third-party facility.
Tenants can remotely access and manage their hardware via specialized management software. However, some hardware-related tasks must be delegated to in-house data center technicians to avoid frequent visits to the facility.
Colocation data centers have on-site staff available 24/7 to monitor systems, respond to issues, and perform immediate physical interventions when required.
These services are covered by Service Level Agreements (SLA), which define uptime guarantees, response times, support availability, and potential penalties. For example:
| 24/7/365 monitoring | Data centers offer automated alert systems and proactive maintenance to allow tenants to address issues even before they impact uptime. |
| Remote hands | Staff employed by the data center can perform reboots, hardware swaps, troubleshooting, and diagnostics on behalf of tenants. Relying on on-site technicians for hardware installations and maintenance reduces operational costs, as in-house staff make fewer trips to the facility. |
Physical Security
The data center is responsible for controlling and restricting access to the facility 24/7. Security measures include on-site security personnel, surveillance cameras, biometric locks, and ID-based access control for authorized personnel.
Unauthorized individuals are strictly prohibited from entering server areas or handling tenant hardware:
| 24/7 security staff | Armed guards or security personnel control entry points at all times. |
| Multi-factor authentication (MFA) | Authorized individuals can access equipment only after verifying their identity using RFID badges, key cards, or biometric scans. |
| Surveillance & logging | CCTV cameras continuously monitor both the exterior and interior of the facility. Additionally, detailed access logs are kept to track who enters the facility and interacts with the equipment. |
| Double-door systems | Visitors and personnel must pass multiple security doors to reach the protected area. A person who fails to authenticate at a checkpoint is contained in a mantrap until their identity is verified. |
Cybersecurity
Colocation data centers have industry-grade protection tools to mitigate cyber attacks, prevent unauthorized access, and ensure data integrity.
Organizations that colocate their servers in a data center benefit from:
| Enterprise-grade firewalls | Advanced firewall software monitors and filters incoming and outgoing traffic. Hence, data centers ensure that the software is maintained and always up-to-date. |
| Zero trust security | Strict zero-trust security policies verify every user and device attempting to access the network. |
| Network segmentation | Virtualized security and network segmentation are used to prevent lateral movement of cyber threats between tenants. |
| IDS/IPS | Automated intrusion detection and intrusion prevention systems monitor network traffic 24/7 for suspicious activity and block threats in real-time. |
| DDoS protection | Advanced DDoS mitigation strategies are used to contain malicious traffic and guarantee uptime even during large-scale attacks. |
Advanced Cooling Systems
Servers and network equipment generate a lot of heat. Without proper cooling, they will overheat, which can degrade performance and cause long-term hardware damage. Cooling IT equipment is both energy-intensive and expensive.
Colocation data centers combine advanced cooling technologies with smart facility design to keep temperatures and costs in check:
| CRAC & CRAH | Air-cooling systems are a primary cooling solution. These systems inject cool air into the server rooms and vent hot air generated by the equipment. |
| Cold/hot aisle containment | Server cabinets are arranged in alternating rows to prevent the mixing of hot and cold air. The front sides of server cabinets face each other, forming a cold aisle. Similarly, the rear sides, which exhaust hot air, also face each other, forming a hot aisle. This arrangement confines air to its respective aisles and improves cooling efficiency. |
| Liquid cooling | Liquid-based cooling systems use water or specialized coolants to absorb and dissipate the heat. This type of cooling is very expensive, and for many organizations, the most cost-effective way to get access to liquid cooling is by placing their equipment in a data center. |
Disaster Recovery and Continuity
Data centers are designed to ensure business continuity in case of natural disasters, security breaches, power outages, or other disruptions.
Colocation data centers implement the following safeguards to protect tenant hardware:
| Disaster-free area | Data centers are usually built away from disaster-prone areas to minimize risks from earthquakes, floods, and other natural hazards. |
| Geo-redundancy | If a data center operator has multiple facilities, they can replicate workloads and distribute data across various locations. Tenants can continue operations with minimal downtime if one site becomes unavailable. |
| Backup and data replication | Tenants can back up critical data in separate locations. If the original data set becomes corrupted, lost, or compromised due to a cyber attack, a clean copy is restored to ensure data integrity. |
| Fire and earthquake protection | Facilities have advanced fire suppression systems and seismic reinforcements to protect tenant hardware against these physical threats. |
Compliance and Accreditation
Businesses that handle sensitive or confidential information must comply with specific local and international regulations. Ensuring the IT infrastructure environment meets these requirements can be time-consuming and expensive.
Data centers have more resources and are well-equipped to meet regulatory standards and pass necessary audits. Some facilities specialize in compliance for specific industries, like financial or healthcare services, and allow tenants to operate in a compliant environment at a fraction of the cost.
Note: Tenants remain responsible for implementing software controls and data protection strategies.
Important compliance standards and frameworks include:
| SOC 2 | This US-focused standard confirms that an audited data center follows strong data protection practices and can support tenants in meeting their own SOC 2 requirements. |
| HIPAA | Required for businesses handling protected health information (PHI). The data center ensures that physical security, access controls, and environmental safeguards meet HIPAA requirements. |
| PCI-DSS | A PCI DSS-compliant data center provides a secure infrastructure for businesses processing credit card transactions via networks like Visa, MasterCard, and American Express. |
| ISO 27001 | This international standard certifies that the data center has implemented strict security practices to protect data from breaches, leaks, and unauthorized access. |
| ISO 22301 | The ISO 22301 standard certifies that the data center has comprehensive business continuity plans to minimize downtime and ensure critical systems stay operational during disruptions. |
Common Colocation Configurations
Most data centers offer several preconfigured options based on the space a tenant requires.
| Colocation Configuration | Equipment | Estimated Cost | Common Use Cases |
|---|---|---|---|
| 1U (Single Server Space) | - 1 server - Single power supply - Basic network switch | $50 - $200/month | Single-server hosting or testing environments. |
| Quarter Cabinet (10-12U) | - 10-12 servers - Dual power supplies - 1Gbps switch | $300 - $800/month | Small businesses with light workloads. |
| Half Cabinet (20-22U) | - 20-22 servers - Redundant power - 10Gbps switch | $600 - $1,500/month | Growing businesses with moderate workloads. |
| Full Cabinet (42U) | - 40-42 servers - High-density power - 40Gbps switch - Advanced cooling | $1,500 - $3,500+/month | Enterprise-level workloads. Suitable for high-performance computing. |
The example pricing is for informative purposes only and is intended to illustrate the differences between the available options. Actual offers and prices can vary significantly depending on the data center operator.
1u Colocation
This is the smallest configuration and usually involves leasing enough rack space for one server (1U). The resources are sufficient to host a single application, website, or small database. With the unit, tenants typically get:
- A single power supply connection.
- An Ethernet port on a shared network switch.
- Basic network connectivity with limited bandwidth.
- Remote hands support.
1U colocation is ideal for individuals or small businesses needing to colocate a server for testing, development, or backup purposes.
Quarter Cabinet Colocation
Small businesses usually need multiple servers to support their operations. A Quarter Cabinet contains 10-12 rack units, with enough space for several servers and essential networking equipment.
It can meet the core needs of a smaller business, such as hosting the company website, email servers, file storage, etc. A Quarter Cabinet offering typically includes:
- Dual power supplies.
- Power distribution unit (PDU).
- 1Gbps switch (shared or dedicated)
- Remote hands support.
- Cross-connect options for private links.
This option is a good fit for companies transitioning from cloud hosting to dedicated colocation or organizations that need dedicated hardware for regulatory or security reasons.
Half Cabinet Colocation
Mid-sized companies looking for dedicated infrastructure can lease rack space for 20-22 units, a so-called Half Cabinet. This setup can support moderate compute-intensive workloads, such as NoSQL database hosting, Virtual Desktop Infrastructure (VDI), and virtual machine (VM) environments.
- Dual redundant power feeds with UPS and generator backup.
- Power Distribution Unit (PDU).
- Dedicated 1Gbps or 10Gbps switch.
- Carrier-neutral connectivity with multiple ISP options.
- Private lockable cabinet door.
- Remote hands support.
- Cross-connect options for hybrid cloud or private connections.
- IPv4 and IPv6 address allocation (typically 5-10 IP addresses included).
Half Cabinet colocation is a practical choice for e-commerce platforms or enterprises that require redundant infrastructure for offsite disaster recovery or business continuity planning.
Full Cabinet Colocation
Full Cabinet setups are designed for large enterprises, research institutions, and HPC applications. This configuration supports up to 42 rack units and includes essential networking equipment for intensive workloads.
Businesses that require maximum uptime, security, and scalability, like banks, telecom providers, and content delivery networks (CDNs), are the primary users of Full Cabinet configurations. A typical Full Cabinet offering includes:
- Dual redundant power feeds with UPS and generator backup.
- Power Distribution Unit (PDU) with remote monitoring.
- Dedicated 1Gbps, 10Gbps, or 40Gbps switch.
- Carrier-neutral connectivity with multiple ISP options.
- Private lockable cabinet door.
- Remote hands support.
- Environmental monitoring for temperature, humidity, and airflow.
- Cross-connect options for hybrid cloud or private links.
- Rack-mounted cable management.
- IPv4 and IPv6 address allocation (up to 30 IP addresses included).
This setup is well-suited for companies that need custom networking setups with high bandwidth to support private cloud deployments, AI, or machine learning projects.
Conclusion
This article has provided a detailed overview of how colocation works, highlighting its key features and listing basic configurations.
If you are still researching which data center type best fits your business needs, read our guide to data center types, for a summary of available options.
