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What is Colocation? - Data Center Fundamentals

By Mike Netzer · 7/6/2020

Colocation is the leasing of digital infrastructure from a data center operator. We're here to help guide you through the variables you want to look at when deciding if colocation is right for you.

This is an episode of HawkPodcast, datacenterHawk’s viewpoints on the data center industry. If you enjoyed this episode, you can check them all out on our blog. If you’d like to know when we release future episodes, you can subscribe here. You can also click here if you’re interested in our data center fundamentals email course.

On this podcast, David and I are going over the second of eight topics on data center fundamentals. We covered this in a blog series as well as an email course. Today, we answer the question “What is colocation?” and discuss some of the defining characteristics of this aspect of the data center industry.

What is colocation?

One option of having digital infrastructure is to build and operate your own data center, but this is mainly for large scale data center users. Colocation offers the option of leasing data center power and space from a data center provider.

Colocation leases can range in size from several servers to an entire data center. Data center providers prefer to structure leases in different ways depending on user needs and lease size.

Leases of 50 kilowatts (kW) and less

Smaller footprints are usually all-in leases, where the user pays a set price per month with little variation. The price includes both the rental rate and power cost.

Leases of 50 kW – 5 megawatts (MW)

These leases are often Gross + Electric, where the user pays a set price per kW of data center infrastructure they lease per month, plus the cost of the power they use.

Leases of 5 MW and higher

Larger leases are often Triple Net (NNN), meaning the user pays the provider to use the space, but manages a larger portion of the operations and utilities themselves.

Benefits of colocation vs on-premise data centers

Many companies prefer colocation to owning and operating their own data center for the following reasons:

1. Save on outsourcing specialized skill sets

Data center operation requires a level of expertise that many companies often lack. While it’s possible for companies to develop a staff to fill this role, it’s often faster, less expensive, and more efficient to outsource the requirement. Data center providers are experts in colocation and can provide specialized solutions that best fit their customer’s needs.

2. Increased flexibility

Because IT strategy can change quickly, companies value fluidity with their data center infrastructure. A company’s data center may fit their needs today, but could be inefficient later. Colocating provides flexibility and helps users avoid getting stuck in a solution that doesn’t fit their needs.

3. Cost savings from provider’s scale

Data center providers are experts in designing and building data centers and often do it in a more cost-efficient manner. Large providers can also leverage their size to lower construction and power costs, and these lower costs are passed on to the user, creating lower operating expenses than owning the data center themselves.

4. Ease of customization

Data center providers offer a variety of services to meet their users’ needs. They can also use their scale to attract third-party service providers, which creates a valuable ecosystem hard for single users to replicate.

5. More fiber connections

A colocation data center often has stronger fiber infrastructure and easier access to cloud service providers, giving users low latency to their cloud environments and the end-customer.

6. Easier path for growth

Growing your data center presence is easier with a data center provider. The relationship between a user and data center provider is typically seen as a long-term partnership. Should a company need a data center in a new market, they can often deploy infrastructure in their provider’s facility in that region. Providers like Digital Realty, Equinix, and CyrusOne report the vast majority of their customers have deployments in more than one of their data centers and many in more than one country.

Colocation for the cloud

More and more demand is being placed consistently in third party data center facilities. Even large tech companies like Microsoft, Facebook, and Amazon find leasing data center space to be a viable strategy in addition to owning and operating the infrastructure themselves.

The benefits of colocation make it an essential aspect of many companies’ IT strategy. In this podcast, we discuss just a few of the reasons why a company would want to utilize colocation, but there are many more.

Don’t forget to check out the rest of our HawkPodcasts and don’t miss out on our latest release of market data for the data center industry.

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