A Definitive Guide to the Costs of Colocation

A Definitive Guide to the Costs of Colocation

For many companies, maintaining IT infrastructure, along with the space, power, and cooling requirements that it entails, can feel like a tedious waste of resources. Worse yet, it can pull resources away from the company’s core mission.

It’s no surprise then that shifting IT infrastructure to a third-party site, a practice known as colocation, or “colo” if you’re cool, is booming. In fact, 2022 is shaping up to be a great year for the colocation industry, with market value set to hit $56 billion.

But despite all that hype, figuring out colocation pricing is often a tricky proposition. What exactly are you being charged for and why? 

This post breaks down the factors that impact your colocation pricing into two core components – facility costs and network costs – to give you a clearer view of how colocation is priced.

Colocation Cost Factors: Facilities

The first set of parameters to consider is facilities, or the costs associated with setting up your infrastructure in a physical space.

  • Power: In this regard, one of the most basic costs that gets passed along by your colo provider is power, but this doesn’t stop at just the electricity running your racks. Power costs also include the cost of HVAC systems to keep equipment cool, and general costs from the building and market the colocation facility is in. So, if the center operates somewhere that charges a premium for power, part of that cost is getting passed on to you.

  • Space: Naturally, the price of your colocation option will also depend on the amount of space you require. If you only need limited space, you might use only one, or a few, standard racks and will get charged “per rack”. But colocation centers also offer larger cabinets or even suites, so your costs here are going to depend entirely on how much space your setup needs.

  • Location: Just like investing in real estate, the geographic location of your colo center is another factor that plays a big role in how much you’re paying. If you want a facility located in a big city, like Los Angeles, expect to pay a premium. You might also face a premium if you want to collocate in a super remote location due to the supply/demand imbalance of colocation facilities, fiber availability, and ISPs. 

  • Redundancy: Having a “backup plan” in the event of an outage is key to running a network with high uptime. For colocation, this comes in the form of power redundancy (i.e. multiple sources of power) and connectivity redundancy (i.e. multiple internet service providers). Depending on your needs, you can configure a colocation environment with several layers of redundancy across power, connectivity, appliances, and cross connections. “Tier 4” data centers boast the strongest redundancy and uptime guarantee, while “Tier 1” risks it with less power redundancy. As you’d expect, Tier 4 data centers will cost you more. 

  • Security and Compliance: The nature of your business is also going to dictate the level of security and regulatory compliance that need to be adhered to regarding your data. For those operating in a sensitive sector, like health, those requirements will translate into costlier colocation options to ensure data storage is safe and compliant.

Colocation Cost Factors: Network

With physical costs taken care of, the next set of factors to consider are those associated with how your network runs within your colocation environment, and what your company’s connectivity requirements are.

  • Dedicated internet access versus IP transit connection: Both DIA and IP transit are dedicated internet services, and some people think these two are interchangeable. It is true that both options provide guarantees in terms of dedicated bandwidth and service level agreements that mean you won’t be fighting high latency and other shared bandwidth issues. IP transit, however, comes with a well-peered ISP network intact which should translate into better connectivity and optimal pricing. IP Transit is the most common form of connectivity in a data center, but if you are offered DIA in a data center you should look into how well peered your ISP is and determine if this is impacting the cost of your connectivity.

  • Bandwidth: The next thing to consider is bandwidth requirements, with the obvious relationship being that the more bandwidth you require, the higher the costs will be. It’s also worth noting that many providers are moving away from traditional fixed and burstable bandwidth models, so it’s worth unpacking how you’re going to be charged in detail with your chosen colocation data center.

  • Cross connections: The number of cross connections (i.e. physical wired connections within the data center) you require between your racks and various cloud services, ISPs, etc. is also a factor. The benefit here is that you bypass the public internet and get dreamy latency, but the more cross connects you add the higher your costs are going to be.

  • Support: Last but not least, it’s important to consider your support needs, and exactly how much you want your colo center to do on your behalf. If you’re basically just renting space and maintaining your own equipment, costs are naturally going to be lower than if the data center is being contracted to be your on-call IT team!

  • Disaster Recovery: Colocation is commonly utilized for Disaster Recovery as a Service (DRaaS) operations, as well. The level of sophistication with these services will vary along with the price.

With the information in this guide on hand, hopefully your most pressing colocation pricing questions have already been answered. But if you still have questions, it’s worth having a look at our ultimate colocation guide for an even more in-depth breakdown of what you can expect from your colo provider.


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