Everything You Need To Know About Colocation Data Centers

Gartner recently proclaimed, “The data center is (almost) dead.” Specifically, they meant traditional, on-site data centers. According to Gartner, 80% of enterprises will shut down their traditional data centers by 2025, in favor of more agile solutions, such as colocation data centers.

Why? Because businesses need broader, more flexible networks to manage increasing amounts of data. Think of all the software-as-a-service (SaaS) companies bringing apps into international user bases. Or the number of smart devices continually transmitting data. A smart dishwasher has to send its food particle analysis somewhere.

With more data coming in from more places, it makes sense for businesses to lean on colocation data centers. These third-party facilities help information technology (IT) and network professionals design the network architecture their businesses need.

Data Center Definition

A data center is a physical building that houses businesses’ data and critical applications. Key hardware components found in data centers include servers, routers, firewalls, switches, application delivery controllers, cross connections, storage systems, power supplies, and environmental controls such as air conditioning and fire suppression. Data centers can be “on-premise” and owned / operated by the company in charge of its servers, or “colocated” in a third-party operated colocation data center.

Network engineers design data centers to facilitate the delivery of data and shared applications to their customers. Redundancy of data center resources (connectivity, power, cooling) is a top priority, as well as reliability (uptime, often dictated by service level agreements or SLAs).

What Is a Colocation Data Center?

A colocation data center is like a warehouse, operated by a third party, where you can store parts of your IT network. You rent space for your servers, routers, and other networking equipment. You set up and maintain control over your devices, while the colocation data center provider maintains an IT-optimized environment, including:

• Power: Enough energy to operate your equipment, run the cooling and ventilation systems, and supply backup power in the event of a power outage;

• Connectivity: Different types of lines from telecommunications and internet service providers (ISPs), supporting a broad range of storage and computing needs;

• Security: This includes not only cybersecurity but also physical security to protect your data from criminals and natural disasters.

There are different types of colocation data centers, the most common being retail and wholesale. Retail colocation refers to renting space at a data center serving multiple businesses. These are also called carrier hotels; picture the racks and cabinets as rooms, and your devices are the guests. Wholesale colocation refers to leasing the whole data center. Whether retail or wholesale, colocation data centers are operated by third parties, as opposed to the data center definition noted above which could fit “on-premise” or company operated data centers.

Does Retail or Wholesale Colocation Fit Your Business?

Wholesale colocation is geared towards large enterprises, managed service providers (MSPs), and government agencies. Oftentimes, but not always, the tenant is responsible for handling much of the IT operations, such as deployment and management. The right colocation model for your company depends on your IT infrastructure capabilities and needs. Companies with modest requirements and a small IT staff find retail a good fit. Businesses that rely heavily on technology and have large tech teams opt for wholesale services.

Why Use a Colocation Data Center?

Colocation offers distinct advantages over other types of data centers, such as owned, managed, and cloud data centers. Colocation can also enhance these other types of data centers, giving businesses more freedom to build diverse, integrated networks.

For example, unified-communications-as-a-service (UCaaS) providers often build global networks by using multiple data centers around the world. That makes more stable voice-over-internet (VoIP) connections over greater distances possible. Likewise, a business might decide to support only mission-critical services in its on-premises data center, and then place other parts of its network into colocation centers.

Colocation doesn’t have to replace traditional data centers. Instead, some businesses may find that colocation offers what they need to extend their existing network.

1. To Scale Your IT Infrastructure Faster and Cheaper

Building and operating your own data center is a huge investment, and it can mean sacrificing agility when pursuing rapid growth. According to JLL, enterprise-grade data centers cost millions of dollars to build, and tech giants like Facebook and Google have spent billions. On top of that, it costs, on average, $10 million to $25 million per year to operate a data center.

Colocation data centers help companies slash this capital and operational expenditure (CapEx and OpEx). The space is already built, and other customers help shoulder operational costs, like power. Data centers consume lots of energy, with most of that electricity going toward the cooling systems and servers. It's no surprise that many people are concerned by the environmental impact of data centers as they become more prevalent.

By keeping your costs down, colocation data centers help you keep cash free as you scale your IT network. To make the most of that agility, look for colocation data centers that take a hands-on approach. Vxchnge offers remote hands services from onsite IT experts who proactively fix problems, like restoring a server that goes down while you’re asleep. That way, you stay focused on the big-picture strategy instead of the day-to-day management.

2. To Guarantee Uptime for Mission-Critical Services

The increase in the number of SaaS companies and cloud applications has made “mission critical” synonymous with “always on” for many companies. That escalates the cost of downtime. Atlassian points out how a 12-hour outage cost Apple $25 million in 2015 (more than $2 million per hour). Similarly, a 14-hour outage cost Facebook $90 million in 2019 (more than $6 million per hour).

Why are the costs so high? Because event tech can’t fail mid-event. Video streaming can’t fail mid-meeting. When your network fails, your customers fail.

Colocation data centers protect uptime by distributing your IT network across more locations. That way, if one location goes down, another can take over. Think of it as an extra layer of disaster recovery.

To guarantee your uptime, match your business needs with the right tier of data center. Each tier reflects standards defined by the Uptime Institute. Tier 1, the most basic, allows up to 28.8 hours of downtime per year, but it doesn’t have to supply any redundancy. If something goes down, there’s no backup. That makes Tier 1 data centers good for businesses with basic services and those that need the most cost-effective solution.

Tier 4 is the most robust option. It allows up to 26.3 minutes of downtime per year, full 2N+1 redundancy (twice the amount of operational resources required, plus backup), and a minimum of 96 hours of power outage protection. This makes Tier 4 a better choice for businesses with mission-critical services that can’t fail.

3. To Physically Secure Your Data and IT Equipment

Traditional data centers centralize much of an IT network’s storage and computing on-premises. That brings some vulnerabilities. Office buildings aren’t designed with a data center’s needs in mind, so the level of physical security your data needs might not be possible. A more centralized network can also raise your attack surface to threats like break-ins and natural disasters.

Meanwhile, colocation data centers factor security threats into their designs. According to Evoque Data Center Solutions, colocation centers should, at a minimum, adhere to industry standards for IT governance, such as ISO 27001, and some form of security operations center (SOC).

Additionally, review how each colocation provider physically secures your data. Pay attention to details such as perimeter security, video surveillance, 24/7 guard presence 365 days a year, and biometric scanners.

4. To Test Your Products and Services for Cloud Fit

As Dell Technologies points out, not every application is ready for the cloud. Some applications are still just too sensitive to latency, or maybe they have heightened security risks. But Dell also notes how colocation data centers can help: by testing cloud fit. Companies can use colocation data centers to create private clouds for testing products and services on a limited basis. Think testing a new tool with a select group of customers. By testing your product on a private cloud first, you validate whether it’s ready for the public cloud.

Look for colocation providers who understand how to support clients using hybrid clouds — both private and public clouds. Check out their experience with cloud interconnects and their track record of working with top cloud providers, such as Amazon Web Services, Microsoft Azure, and IBM Cloud.

5. To Build an Edge Network

The proliferation of mobile apps and the Internet of Things (IoT) means networks need to connect with more always-on devices over greater distances. Colocation closes the gap between your network and its data sources by helping you build edge networks and support fog computing. The closer you bring your network to the source — or edge — of its data, the faster and more securely you can process that data.

If you want to use colocation to help build out an edge network, then look for providers that understand how to support you. Secure access service edge (SASE) technology is a good sign. It helps secure your network no matter where a user or device accesses it from.

Other Types of Data Centers

We recommend you understand the different flavors of data centers before choosing the best solution for your business.

Onsite Data Center

Sited within a company's headquarters or campus, these data centers are relatively easy to maintain and access. Their proximity to company operations alleviates network troubleshooting and they can readily be scaled up or down as needed, depending on the space and resources available. Another advantage of an onsite data center is that an organization can wield complete control over its data, bolstering network cybersecurity and compliance needs, such as the Health Insurance Portability and Accountability Act (HIPAA).

On the downside, the energy needed to run an onsite data center can overtax a building's existing power supply and cabling. Site maintenance can be prohibitively expensive. Additionally, onsite data centers pose a risk to your business continuity due to the concentration of data/resources in one local geography (unless backed up by a trusty DRaaS provider). For these reasons, many companies instead choose from one of the following alternatives.

Edge Data Center

Similar to an onsite data center and close to end users and their networks, an edge data center too can be easily customized and scaled to meet the needs of its users. Like an onsite data center, an edge data center is generally owned by the organization that uses it but operations are outsourced to an outside company.

Edge data centers are relatively small facilities compared to "server farms." To assure redundancy and user availability, they usually connect to multiple data centers or a larger fabric, such as those found in the Dulles Technology Corridor in Northern Virginia. 

Hyperscale Data Center

Similar to colocation facilities, hyperscale (or cloud) data centers are owned and operated by platforms like Microsoft Azure, Google Cloud, and Amazon Web Services (AWS). They also serve multiple organizations but on a far bigger scale. Designed for rapid expansion and scalability, they may host thousands or even millions of servers, and will often reserve empty space for future expansion as well. The floor space of a hyperscale facility typically exceeds 10,000 square feet and many are much larger.

Think of colocation data centers as data warehouses while hyperscale data centers can be considered data distribution hubs. The biggest challenges for hyperscale facilities are cooling (their highest expense), server workloads, and electrical power distribution and availability.

Telecom Data Center

As its name indicates, a telecom data center is owned and operated by telcos such as AT&T or Verizon. Delivering massive connectivity, these facilities provide mobile services, cloud services, and content delivery. Telco personnel install and manage these centers. Some telecom data centers offer colocation services to customers.

To appreciate how large these facilities can be, see this overhead view of AT&T's data center in Allen, TX (a Dallas suburb) below. Note the HVAC equipment at the top of the image. Wind turbines also provide power to this facility.

How Does Colocation Data Center Pricing Work?

There is a lot of variability in pricing for colocation data centers. To start, every company has unique IT and networking needs. On top of that, colocation centers price themselves differently. This combination of market conditions makes finding and pricing colocation data centers as difficult as buying telecom services.

That said, there’s still information available to help you understand what to expect. Looking at Atlanta-based colocation provider Digital Services Consultants’ colocation pricing guide, we can broadly categorize colocation costs as including the following:

• Space: The cost of the actual physical space you need, starting with racks and going up to more spacious options, like cabinets, cages, and suites.

• Power: The cost of the energy required to keep your network running and maintain the optimal climate for your IT equipment.

• Connection: The cost of the bandwidth that the data center allocates to your network. This might include the connection between the data center and your network, such as a VPN or a dedicated internet access (DIA) line.

That’s not an exhaustive list, nor should you expect all providers to price their services the same way. Generally, there will be some kind of setup fee. Also, expect to navigate different levels of support. Some providers take a hands-off approach, and some treat colocation like a managed service, offering premium support options.

The location of a data center affects cost, too. Proximity to large populations, related infrastructure, weather activity, and even terrorist vulnerability are all drivers of colocation pricing. Take Northern Virginia, also known as Data Center Alley, where access to Dominion Virginia Power and the Potomac River makes the cost per megawatt 20% lower than the U.S. average.

Such variability is why Digital Services Consultants estimate the cost of one rack unit (1.75 inches of vertical space) at $40 to $100 in Miami, but $75 to $300 in New York. That’s up to a 200% jump in cost. Given all this variability in colocation pricing, it’s important that the data center you choose practices transparent pricing with itemized costs. This will protect you from surprise fees.

Where To Find the Right Colocation Data Center

When intentionally planned as part of your wide area network (WAN), colocation data centers can give you an edge in scaling your IT network. Colocation brings your software-based products and services closer to your users and data sources. That helps you process and store data faster and more securely than relying solely on an in-house data center. Colocation does so at a lower cost, too, all while helping guarantee your uptime.

Finding the right colocation data center doesn’t have to be an odyssey through complicated pricing. When utilizing Lightyear, you can just define what you need, and collect quotes from colocation providers. We can also help you think through decisions on power, connectivity, pricing, and much more.