What is Colocation?

Colocation Guide: Choosing the Right Provider

A colocation facility, often referred to as a colo, is a dedicated data center where businesses can rent space to house their servers and other computing equipment. In a colo model, the firm delivers its own servers and storage equipment while the facility provides necessary services including the physical infrastructure, cooling, electricity, bandwidth, and security. Typically, clients rent space within the colocation facility based on various units, including racks, cabinets, cages, or even entire rooms. Many colocation facilities have increased the range of managed services they offer to meet the commercial goals of their clients.

Businesses choose colocation for various reasons, but a significant factor is avoiding substantial capital expenses linked to constructing, operating, and upgrading a large-scale data center. Historically, companies frequently utilized colocation for disaster recovery purposes. However, in the present landscape, cloud service providers particularly favor colocation facilities.

Although colocation may be a good option for some businesses, there may also be disadvantages. Physical distance can lead to increased travel costs for handling equipment, and businesses utilizing colocation may find themselves locked into long-term contracts that hinder their ability to renegotiate rates as technology prices decrease. Organizations must carefully analyze the service-level agreements (SLAs) provided by colocation providers to prevent unforeseen extra costs.

In the present business landscape, data centers play a central role, serving as the critical core that provides the essential computing, storage, and networking resources required to operate a wide variety of demanding enterprise applications. Traditionally, businesses used to build and oversee their own data centers, occasionally managing multiple facilities strategically located across different regions or even globally. However, these conventional data centers are intricate, costly structures with limited resources. Occasionally, the financial burden of building, operating, or expanding such a resource-intensive investment can be overwhelming.

Instead of opting for the construction and operation of a private data center, businesses have the option to embrace colocation. In this scenario, they rent or lease data center capacity provided by a remote colocation provider, accessing these resources via a wide area network (WAN), often the Internet.

Colocation squarely focuses on IT and aims to provide some level of data center support to client businesses. At its most basic level, a colocation provider, sometimes referred to as a colo, maintains and grants clients access to fundamental facilities, including physical building space, power, cooling, physical security, and telco access for WAN connectivity. Clients essentially rent or lease space within the facility, while supplying their own computing, storage, networking equipment, and personnel. Even though the client company still owns and controls its IT equipment, this strategy substantially eliminates the cost of building and maintaining a data center infrastructure.

Colocation providers can take their services a step further by not only housing the physical infrastructure but also hosting the computing, storage, networking components, software tools, and expertise necessary to run an entire data center. Such hosted or colocation providers provide comprehensive platforms for client businesses that require data center resources but prefer not to construct or equip their own data center facilities. Managed colocation represents the pinnacle, where the provider operates a fully equipped data center and rents access to provisioned resources.

Colocation providers often position their facilities at a considerable distance from the client’s business location. This geographical separation can pose challenges when the business needs to send its IT personnel to work with equipment located in the colocation facility. During emergencies when immediate attention is necessary for a service or system, traveling can incur costs, consume time, and prove impractical. To address this, providers often offer remote hand services. These services leverage the provider’s own IT personnel to perform various tasks as requested by the client. The management of cables, configuration adjustments, power cycles, reboots, and the installation and removal of equipment are all included in this. It’s important to note that remote hands services don’t apply when the colocation provider owns and manages the equipment; in those cases, it’s simply the provider’s own IT team performing their regular duties.

Exactly why do businesses choose colocation?

Colocation stands out as an alluring IT service since it provides companies with solutions and accomplishments that could be too expensive or hard for them to handle on their own.

• Cost: Building and maintaining a comprehensive data center is a substantial investment. Constructing a new data center can take years and cost tens of millions of dollars for the building, equipment deployment, and WAN fiber installation, along with ongoing operating expenses for electricity, upkeep, and taxes. Even if a business invests in one data center, a second often remains financially challenging. In this situation, using a colocation provider can significantly reduce the financial load on the company.
  Colocation can be leveraged to minimize local computing facility investments. Instead of a traditional data center, a scaled-back setup, like a container data center, can handle mission-critical workloads. Colocation is then employed for routine, experimental, or transient tasks. For businesses with existing data centers, colocation facilities can replace the need to construct additional data centers, especially in different geopolitical areas as business requirements evolve.
• Performance: Modern businesses demand a global presence, which means global access to applications and data. A single data center may struggle to meet the needs of users worldwide. Despite spending money on network bandwidth, issues with connectivity, network latency, and congestion can impair remote users’ ability to access workloads and their performance. Colocation addresses this problem by relocating workloads and data nearer to users across multiple locations, eliminating the necessity to construct new facilities.
• Compliance:  Increasing government regulations impact the use, management, and security of applications and application data for global businesses. A single data center might not fulfill the data residency requirements of certain countries or regions. Without having to invest in more expensive construction, colocation enables enterprises to comply with regulatory standards. By engaging colocation services from providers operating in the target geopolitical area, regulatory compliance can be achieved.
• Services: A single traditional data center poses a single-point-of-failure risk for a business. Disruptions due to factors like fires, natural disasters, and accidents can affect critical application availability. Effective disaster recovery requires maintaining redundancy, and colocation offers a financially advantageous way to do so for critical workloads. A colocation facility can function as a warm site for backup or standby, or even as a hot site that handles part of the application’s compute load.

Make it clear that there is a distinction between colocation and cloud computing. Though often used interchangeably, cloud computing and colocation differ in positioning. Cloud computing provides IT resources and services managed by users but owned and operated by the cloud provider. Contrarily, colocation provides tangible resources and services tailored to the specific demands of client enterprises. A colocation business cannot operate from a cloud, although a private cloud can function within a colocation data center.

Benefits and Drawbacks of Colocation Data Centers:

Colocation is profitable because it saves client organizations the expense and hassle of creating physical premises and investing in equipment by offering them an affordable remote computing presence in strategic political or geographic locations. The colocation provider supplies the facility and often its computing resources for diverse purposes.

But before committing, firms should carefully weigh the advantages and disadvantages of colocation. Beyond cost, performance, compliance, and service advantages, several additional colocation benefits should be weighed:

• Inclusive Costs: Colocation expenses are primarily recurring operating costs covering the provider’s expenditures and profit. Power distribution, cooling, security, communication, upkeep, and other operating costs are covered by the recurring charge.
• Access to Services: A colocation provider may host numerous interconnected data centers worldwide, with many clients offering valuable services like SaaS or microservices. High-speed data center prices can be used to contract for and utilize these services.
• Scalability: Colocation agreements can be adjusted to add or remove space or equipment as computing needs evolve over time.
• Resilience: Colocation facilities prioritize availability and resiliency due to numerous clients. Because reliable infrastructure is ensured by this emphasis on resilience, clients of the provider benefit.
  In the end, this commitment to resilience benefits the provider’s clients by maintaining a reliable infrastructure.
  To summarize, companies choose colocation due to its affordability, improved performance, dedication to compliance, and the variety of services it provides. They are able to develop a distant computing presence thanks to this without having to make large infrastructure investments.

Although there are alluring benefits associated with colocation, there are also common drawbacks that can impact how client businesses operate in partnership with colocation providers.

These challenges often include:

• Limited Access: Keep in mind that a colocation facility operates as a separate business, and access is strictly regulated. While remote tasks like equipment management and monitoring are typically feasible, physical access – like adding, removing, repairing, or reconfiguring equipment – is tightly controlled. If the colocation provider owns and supplies the equipment, the client business might not have direct access.
• Costly Travel: Sending technicians to distant colocation sites to work with client-owned equipment can become expensive. Remote hands services offered by many colocation providers can help reduce time and travel costs, but these services might come with additional charges.
• Diverse Cost Factors: While colocation involves recurring costs, the specific factors influencing these costs can vary among providers. In order to determine rates, providers may employ a variety of formulae that take factors like power consumption and rented space into account. Simple cost comparisons may become more difficult as a result of these variations.
• Contractual Limitations: Colocation agreements often come with long-term contracts that bind businesses to the provider for several years. This can become problematic if costs decrease, business needs change, or other terms no longer suit the client’s business. Contract terms should be carefully examined and taken into consideration as they may limit opportunities for renegotiation.
• Challenges with SLAs:  The core of any colocation agreement is the service-level agreement (SLA), but monitoring and enforcing the SLA can be challenging. A client organization must carefully consider monitoring and reporting techniques, ensure that their systems and the tools used by the provider are compatible, and establish procedures for assessing and validating SLA targets, such as outage reaction times. Without effective means to enforce SLAs, they might not hold.
• Facility Lifecycles Vary:  A cutting-edge data center today could become outdated in just a few years, presenting a significant challenge in staying current and relevant. The maintenance and upgrade plans of the colocation provider, as well as an analysis of how older facilities have evolved over time, can both be quite instructive.

What are the challenges of transitioning to a colocation data center?

While the idea of moving to a colocation provider might appear simple, the adoption process is seldom quick or straightforward. Despite the lower initial investment compared to building a new data center, this business decision demands careful consideration because colocation agreements entail long-term commitments and constraints. To select the colocation provider, location, and terms that best suit their current and future business needs, client organizations must perform considerable research.

Here are some common challenges to keep in mind:

• Response Times: In a local data center, when an issue arises, the business takes the lead in resolving it. The needs of the firm are being met by easily available personnel, resources, and equipment. Owning a data center effectively means owning availability and response times. However, with a colocation provider, you’re essentially partnering with an entity with its own troubleshooting priorities and response time objectives, which may differ significantly from yours. Colocation clients must come up with plans for debugging problems and resuming servers and applications during downtime. While remote hands services can assist, resolving problems often takes longer and adheres to the colocation provider’s SLA. Response times may be further prolonged by providers’ requirements for official trouble tickets and an escalation procedure. Lengthy response times can impact the type and criticality of workloads deployed with a colocation partner.
• Scalability: Any colocation provider is open to renting additional space and resources, but these offerings have limits. Typically, negotiating changes to the colocation contract may experience a delay of weeks, if not months, and limitations on the number of adjustments allowed within a specific period. This is notably different from public clouds, where resources can be added, used, and retired in mere minutes.
• Transparency: Modern businesses require visibility into their data center operations. Technical and administrative openness is essential to guarantee client workload availability and well-being, provider adherence to service level agreements (SLAs), and even to confirm client security and regulatory compliance. However, colocation providers can be geographically distant, making them costly and time-consuming to access. If clients are renting servers, storage, and other equipment, access to the facility might be limited or even restricted. Additionally, remote management tools might not seamlessly integrate with local infrastructure or provide a comprehensive view of the provider’s environment.
• Noisy Neighbors: Unlike public clouds, which rely on shared resources, colocation facilities typically do not share resources apart from facility-wide utilities like power and cooling. Servers, storage, and other equipment are generally housed separately for each client’s exclusive use. Nevertheless, shared resources, including LAN and WAN access, still exist. This introduces the potential for “noisy neighbors,” which can affect the performance of critical applications. Client businesses should diligently monitor workload performance and promptly identify and address performance disruptions through coordination with the colocation provider.

Let’s compare different types

Let’s break down the information about colocation providers and what to consider when choosing one:

Colocation providers are usually categorized as wholesale, retail, or hybrid. These terms reflect the size of the colocation offering and the target client market.

• Wholesale Colocation: Think of this like buying in bulk. Wholesale colocation offers an entire facility or a significant portion of it to a client business. Every element of infrastructure is covered, including lighting, ventilation, and security.
  It’s typically chosen by large businesses requiring 1 megawatt or more of IT equipment.
• Retail Colocation: Similar to buying from a retail store, this option allows clients to rent space and equipment as needed. For small to midsize clients, it is more flexible and economical. However, the space is shared, so partitioning and security are crucial.
• Hybrid Colocation: This combines managed retail colocation with cloud interoperability. Clients can use colocation for their IT infrastructure and access cloud services through the same provider.
• Now, let’s look at what to consider when selecting a colocation provider:
• Power Density: Understand how much power the provider can deliver. High-density technology might require more cooling and power, which could increase prices.
• Floor Space: Consider rack consolidation and floor space costs. Maximizing space efficiency can save money over the contract’s duration.
• WAN Redundancy: Ensure the provider offers carrier-neutral connectivity with various network carriers. Competitive pricing and redundancy for client connectivity are essential.
• Contract and SLA Flexibility: Review the service agreement and SLA carefully. Negotiate conditions like availability and scalability that are essential to your company.
• Location: Choose the colocation site based on your needs, whether it’s for disaster recovery or global presence. Management and accessibility are impacted by location.
• Compliance: Verify the provider’s adherence to any industry-specific certifications and standards that are necessary for your business’s regulatory requirements.
• Security: Assess the provider’s security measures and discuss additional security options if needed.
• Services: Check the managed services available. Regular duties like backup and disaster recovery planning can be aided by these services.
• Roadmap: Consider the provider’s future plans and how they align with your business’s growth. Ensure that the contract allows for changes over time.

Selecting the right colocation provider requires careful planning and consideration due to the long-term commitment involved.

Factors to Consider When Calculating the Costs

When selecting a colocation provider, careful consideration of costs and services is essential. Providers offer diverse solutions, from leasing raw data center space to managed server rentals, presenting clients with choices in managing tasks independently or relying on provider services. Direct pricing comparisons can be challenging due to the variety of options, but key factors guide decision-making.

• Facility vs. Managed Services: Opting for empty data center space doesn’t necessarily equate to lower costs. Leasing space involves square footage or square meter fees, coupled with finite power and cooling provisions per rack. Exceeding default capacity may incur additional charges. Businesses selecting this option must invest in equipment purchase, deployment, configuration, testing, and maintenance. In contrast, managed colocation involves renting servers or racks from a provider who owns the building and gear. The provider manages equipment ownership, reducing the burden on businesses.
• Power Considerations: Standard colocation pricing may include power, but exceeding default usage might lead to surcharges. Power costs could be billed separately using kilovolt amperes or metered usage. Redundant power (A/B power) may be part of the default package or available at an extra cost. Discussing stepped power pricing for expected usage increases during the contract can be beneficial.

Understanding these factors ensures informed decisions when choosing a colocation provider, avoiding costly mistakes in the dynamic and diverse colocation market.

• Services Offered: Colocation arrangements usually do not include services by default. Whether the choice is a DIY space or managed colocation, the responsibility of deploying equipment or using provisioned servers and virtual machines falls on the client. Some suppliers provide deployment and setup services, sometimes known as “rack and stack,” which can be economical for companies without enough personnel or resources for on-site setup. Other services like remote hands support might come with an hourly charge.
• Connectivity Considerations: While the colocation facility generally accommodates multiple telecom providers, the client is responsible for selecting bandwidth offerings and connecting to their preferred provider. Bundling connectivity costs in a managed colocation agreement may occur, but additional recurring fees might apply for redundant connectivity. In order to enable smooth access to cloud services from the colocation data center, certain colocation providers are supporting connections to public clouds. Location Impact: As with all real estate, location plays a crucial role. Desirable locations like urban centers or areas close to major infrastructure might come with a premium cost due to high real estate values. These places usually offer better connectivity options at a lower cost.
• Remote sites, on the other hand, could provide cheaper real estate but might lead to higher transportation expenses. A few things like parking, office rooms, meeting areas, and food options at a place can affect how much you spend. Sometimes, you might have to pay extra for these things from certain service providers.
• Hidden Fees and Transparency: Scrutinizing the fine print is essential. While leasing and power costs are evident, other fees like setup charges, change fees, redundancy costs, backup and data protection services, and network connectivity fees might be less visible. Thoroughly reviewing the primary service agreement and SLA is crucial. Make sure to carefully consider the service warranties, especially when it comes to promises about how consistently the service will be available. SLAs relying on vague availability terms could result in considerable downtime costs.
• Negotiating Colocation Contracts
• Colocation comes with some attractive benefits, but choosing the right provider can be a bit tricky. Unlike pay-as-you-go cloud models, colocation involves long-term contracts, binding clients to relationships that last for years. Making thoughtful choices and being aware of the complexities of the connection will decide success. The Service Level Agreement (SLA) governs the contracts between colocation providers and clients. Understanding the Service Level Agreement (SLA) and tailoring its terms to the customer’s particular demands is crucial for a positive colocation experience.
• Transparency in SLA Negotiations: Clarity is key. Businesses should understand their reasons for seeking colocation and the expected benefits before considering providers. Businesses, by knowing their needs upfront, can evaluate contracts to ensure meeting requirements or address them in discussions. Researching the service provider and their Service Level Agreement (SLA) in-depth is crucial. Look into details like how quickly they respond, their refund policies, how easily you can scale your services, the kind of reporting they offer, and the conditions for ending the agreement, in addition to their uptime guarantees.
• Matching Offerings with Needs: After confirming alignment between provider offerings and business needs, negotiations can address any concerns. Continue your search if suppliers are unable to solve these issues. Better to stay away from a terrible bargain.
• Renewal and Future Considerations: Contract renewal involves extending terms, adjusting space or equipment, addressing deficiencies, and considering additional services. Plan for renewal before the contract expires, incorporating changing needs and goals. Strategies like reconfiguring gear for space efficiency and extending contract terms can also be effective.
• Handling Disputes and Termination: Even with well-negotiated agreements, disappointments can arise, including missed guarantees or increased costs. In such cases, terminating the relationship might be necessary. Review any agreements thoroughly to ensure that everyone is aware of their obligations. Keep a record of any actions taken to solve problems, noting down the dates and the people involved. Involving technology service contract litigation attorneys might be necessary for legal action. Termination clauses can lead to contract end, prompting the search for a new provider. Before switching, consider other options because switching might be disruptive.

Trends in 2023

The colocation industry, where businesses lease space and services for their data requirements, is adapting to meet the demands of contemporary enterprise computing.

Here are some key trends we’re seeing for 2023 and beyond:

1. Granular and Flexible Hosting: Colocation providers are offering more flexibility by allowing clients to rent as little as a single server (1U) for short monthly terms. Longer commitments still come with discounts, but this flexibility caters to a wider range of needs.
2. On-Ramp to the Cloud: Colocation is increasingly being used as a bridge to the public cloud. Traditional businesses are transitioning to colocation data centers, simplifying workload movement between the facility and the public cloud. This agility speeds up deployment and offers more options for managing workloads.
3. Specialized Use Cases: Colocation is finding applications in specialized areas. This entails facilitating edge computing, managing jobs that need handling large amounts of data quickly, and assisting distributed data networks. Edge computing enhances performance and reduces delays by bringing computational power closer to the data generation source.

Negotiating a Colocation Contract

Choosing the right provider and crafting a suitable contract is crucial for realizing positive outcomes despite colocation’s potential benefits. Unlike on-demand payment in public clouds, colocation often involves long-term contracts spanning multiple years, requiring commitment from businesses.

Here’s a guide on navigating the complexities:

1. Understanding the SLA: The Service Level Agreement (SLA) is the foundation of the relationship between a colocation provider and its clients. It’s critical to fully comprehend the Service Level Agreement (SLA) and modify it to conform to your specific needs.
2. Transparency is Key: Business executives must have a clear idea of why they require colocation and the benefits they want to obtain before looking for a provider. Starting with this information simplifies assessing contracts, and ensuring adherence to agreed-upon standards.
3. Due Diligence: When evaluating providers and SLAs, look beyond uptime commitments. Consider factors like response times for on-site and telephone support, refund and credit policies for downtime, scalability options, reporting and notification procedures, root cause analysis for any downtime, and the terms for terminating the agreement.
4. Negotiating the Agreement: Once the provider’s offering aligns with your business needs, you can negotiate the contract to address any remaining concerns. If the provider can’t resolve these issues satisfactorily, it’s better to continue your search for a suitable partner.
5. Contract Renewal: Contract renewal will come up eventually. Typically, it entails extending the duration of the contract, modifying the colocation facility or its components, fixing problems, and taking into account new services.
   Plan for renewal well in advance, taking into account evolving needs and strategies for cost savings.
6. Managing Disappointments: Even with careful negotiations, agreements with providers can sometimes lead to disappointments, such as missed guarantees, rising costs, or performance issues. If the provider can’t address your concerns, consider terminating the colocation relationship. However, be aware that this may come with contractual costs and potential legal action if not done under solid grounds.
7. Termination Process: Should the need arise to terminate the contract, review the agreements carefully to clarify the roles and responsibilities of both parties. Document instances where the provider has not met contractual obligations and efforts made to resolve issues. The intention is to get the supplier to fix problems or renegotiate the contract.
8. Legal Action as a Last Resort: If issues persist and the provider is uncooperative, legal action may be necessary, involving lawyers experienced in technology service contract disputes. The aim is still to hold the provider accountable under the colocation agreement.
9. Invoke Termination Clause Carefully: Finally, if there’s no alternative, invoking a suitable termination clause leads to contract termination. This means ending the current colocation relationship and finding another provider. Prepare for the time, effort, and potential disruption that such a transition may entail. Exhaust all other avenues before making this decision.