What Is a Colocation Data Center and How Does It Work?

For modern companies, growing requirements for IT infrastructure reliability, service availability, data security, and scalability make maintaining an in-house server room increasingly complex and costly. At the same time, a full transition to the public cloud is not suitable for everyone, especially when maintaining control over hardware and architecture is critical for the business.

A colocation data center represents a compromise model between on-premises infrastructure and cloud platforms. It allows companies to place their servers and network equipment in a professional data center while using its engineering infrastructure, power supply, cooling systems, and connectivity. The equipment remains the property of the client, and key configuration and operational decisions are made within the company.

Colocation is widely used in the B2B segment, including SaaS platforms, financial services, e-commerce, corporate information systems, and other projects with increased requirements for stability and control. Understanding how colocation data centers are structured and how they operate helps determine whether this model is suitable for specific business objectives and infrastructure requirements.

How colocation differs from other infrastructure deployment models

The choice of an IT infrastructure deployment model directly affects the level of control, costs, scalability, and operational workload. Colocation is often compared with on-premises server rooms, cloud platforms, and various hosting formats. However, there are important differences.

Colocation and on-premises infrastructure

With on-premises deployment, a company places servers in its own facility and is fully responsible for the engineering infrastructure, including power supply, cooling, redundancy, physical security, and maintenance. This approach requires significant capital investment and ongoing operational expenses.

Colocation makes it possible to move equipment to a professional data center while retaining ownership of the servers and control over the architecture. The company eliminates the need to build and maintain its own server room while gaining access to an industrial level of reliability and fault tolerance.

Colocation and cloud

Public cloud platforms provide computing resources as a service and remove hardware responsibility from the client. However, this also reduces the level of control over the infrastructure, and the pricing model can become complex and less predictable under steady workloads.

Unlike cloud platforms, colocation involves the use of the client’s physical hardware. This is critical for systems with constant workloads, specialized equipment, or specific data placement requirements. Colocation is often used as the foundation for hybrid solutions, where part of the services run in the cloud and part on dedicated servers.

Colocation and dedicated / managed hosting

Dedicated hosting involves renting ready-made servers from a provider, while managed hosting additionally includes administration and support from the operator. These models are convenient but limit flexibility and customization options.

Key differences between colocation and hosting models:

• the client independently selects and configures the hardware;
• the provider is responsible only for the physical infrastructure and placement conditions.

As a result, colocation occupies an intermediate position between full on-premises autonomy and the service-based cloud model, combining control, cost predictability, and a professional infrastructure level.

How a colocation data center works

The operation of a colocation data center is built around providing clients with a stable and fault-tolerant physical environment for hosting server equipment. The provider is responsible for the engineering systems and operating conditions, while the client uses this infrastructure to deploy and support its IT services.

Physical infrastructure and equipment placement

Client equipment is installed in data center server halls equipped with standard-format server racks. Depending on business requirements, this may include several rack units within a shared rack, a dedicated rack, or a separate designated area. The data center maintains control over temperature, humidity, and other parameters critical to stable equipment operation.

Power supply and redundancy

One of the core functions of a colocation data center is reliable power delivery. Power is supplied with multi-level redundancy, including uninterruptible power supplies and diesel generators. This ensures continuous server operation even in the event of external power grid failures.

Cooling and climate control

Industrial cooling systems designed for high equipment density are used to remove heat. Climate control operates continuously and ensures even distribution of cold air, preventing overheating and performance degradation of servers.

Network connectivity and access to carriers

Colocation data centers provide connectivity to multiple telecommunications carriers and internet exchange points. Clients can select one or more network providers, configure link redundancy, and manage network architecture according to their requirements.

Physical security and access control

Data centers use multi-layer security systems, including on-site security, video surveillance, and access control mechanisms. Access to equipment is granted only to authorized client representatives, reducing the risk of unauthorized interference.

Which companies colocation is suitable for

Colocation data centers are used by companies that require a combination of infrastructure control and a high level of reliability. This model is not suitable for every scenario, but in certain cases it represents an optimal choice.

• Medium and large businesses. Companies with stable IT workloads and in-house administration teams often choose colocation as an alternative to maintaining their own server rooms. This approach reduces operational risks while providing access to professional infrastructure without loss of system control.
• SaaS and platform-based solutions. SaaS projects and digital platforms use colocation to host the core of their infrastructure, particularly under constant workloads and predictable performance requirements. Colocation is also well suited for building hybrid architectures integrated with cloud services.
• Financial, e-commerce, and enterprise projects. Companies in fintech, e-commerce, and corporate IT environments often have elevated requirements for availability, security, and data placement. Colocation allows them to meet these requirements while maintaining full control over hardware and network architecture.
• Companies with specific control requirements. Colocation is suitable for organizations for which physical ownership of servers, the use of specialized hardware, or compliance with internal and industry standards is critical. This may be driven by regulatory requirements, security policies, or architectural constraints.

Advantages of colocation data centers

Colocation combines the characteristics of on-premises infrastructure with those of a professional data center. For many companies, this combination becomes a key factor when selecting a server deployment model.

• Infrastructure control. The equipment remains the property of the client, and all architectural and technical decisions are made within the company. This allows the use of any hardware configurations, operating systems, and software stacks without restrictions from the provider.
• Reliability and fault tolerance. Data centers ensure a high level of availability through redundancy of power supply, cooling, and network components. Achieving this level of reliability in an in-house server room is difficult and costly, especially as infrastructure grows.
• Scalability and flexibility. Colocation enables gradual expansion of resources as the business grows. A company can add equipment, increase power capacity, or expand its placement area without rebuilding its own infrastructure.
• Cost predictability. Unlike cloud models with variable pricing, colocation provides a more transparent cost structure. Core expenses are associated with space rental and power consumption, which simplifies financial planning under steady workloads.

Limitations and key considerations

Despite its advantages, colocation is not a universal solution. When choosing this model, it is important to consider several limitations and operational factors that directly affect infrastructure management.

• Responsibility for equipment. Under the colocation model, the client is fully responsible for its server and network hardware. This includes procurement, configuration, upgrades, and resolution of hardware failures. Without an in-house IT team or sufficient administrative experience, this responsibility can become a significant risk factor.
• Initial investment and planning. Colocation requires upfront investment in equipment and installation. Unlike cloud services, where infrastructure is available immediately, colocation demands careful advance planning of configurations, capacity, and expansion timelines. Planning errors can result in additional costs.
• Operational and organizational considerations. Access to equipment is governed by data center policies and the physical location of the facility. This requires established processes, procedures, and, in some cases, the use of additional data center services to perform operational tasks on the hardware.

How to choose a colocation data center

Choosing a colocation data center directly affects the stability of IT infrastructure operations and long-term operational costs. When evaluating a facility, it is important to consider not only pricing, but also technical and organizational factors.

Location and fault tolerance

The geographic location of a data center affects latency, service availability, and redundancy scenarios. For mission-critical systems, facilities in different regions or the ability to build a distributed infrastructure are often considered.

Data center tier and standards

One of the key indicators is the data center tier, typically defined by the Tier classification from I to IV. Tier IV data centers offer the highest level of reliability but are also the most expensive. The Tier level reflects the degree of redundancy of engineering systems and the allowable level of downtime. The presence of international standards and certifications confirming operational maturity is also important.

Network infrastructure and carriers

A colocation data center should provide access to multiple independent network carriers. This enables link redundancy, traffic route optimization, and reduced risk of network failures.

Security and access conditions

Physical security, access control systems, and data hall access procedures directly impact equipment protection. It is important to clearly understand how access is organized, which procedures are in place, and what restrictions apply to client personnel.

Contract flexibility and support

When selecting a facility, it is important to consider scalability options, the ability to modify placement terms, and the availability of additional services. Flexible contracts and clearly defined SLAs make it easier to adapt infrastructure to changing business requirements.

When a colocation data center is the optimal choice

A colocation data center is an IT infrastructure deployment model that combines control over owned hardware with the advantages of a professional data center environment. It is suitable for companies for which reliability, predictable operations, and the ability to independently manage system architecture are critical.

Colocation does not replace cloud platforms and is not a universal solution for all scenarios. However, for projects with stable workloads, increased security and compliance requirements, and the use of specialized hardware, this model is often the optimal choice. It helps reduce operational risks, avoid the costs of maintaining an in-house server room, and retain full control over infrastructure.