What Is a Colocation Data Center (Colo)? Benefits and Considerations

Posted by Jerod Green on March 20, 2023

Data centers are expensive. Simply operating a data center requires ongoing expenditures for power, cooling, staffing, and property taxes. If there’s a need to expand, substantial capital investments are needed to build out the additional space. Constructing a new data center would cost millions.

Cloud adoption is being driven, in part, by this economic reality. However, the cloud isn’t the best choice for every application and service. Most organizations have some workloads they need to keep on company-owned systems for security and performance reasons. And cloud costs can quickly mount as server and storage requirements increase.

That’s why more organizations are turning to colocation. Custom Market Insights expects the global data center colocation market to see a compound annual growth rate of 14.2 percent through 2030.

What Is a Colocation Data Center?

Also known as multi-tenant data centers (MTDC), or “colos” for short, a colocation facility provides power, cooling, and physical space for company-owned IT infrastructure, along with connections to a variety of telecom and network service providers. It saves companies the cost of building out data center space while providing advanced and reliable capabilities they might not otherwise be able to afford.

Wholesale colocation is designed for larger organizations with significant power requirements and the need to isolate equipment in locking cages, private suites, or even the entire facility. Retail colocation is designed for smaller organizations and is typically billed based on square footage and power used. Some colocation providers sell space in lockable cabinets with power in fixed increments.

What Is a Carrier Hotel?

A “carrier hotel” is a building in the central district of a major city that houses the network infrastructure of multiple telecom carriers and cloud providers. These companies connect to each other’s network backbones and offer connectivity for other service providers, colocation facilities, and large data centers. Organizations can also deploy their workloads in carrier hotels to maximize performance and global reach.

The term “carrier hotel” is increasingly used to describe carrier-neutral colocation data centers. These facilities aren’t tied to any ISP or network provider. Learn the benefits of carrier-neutral data centers here.

Benefits of a Colocation Data Center


The availability of multiple options means that customers can choose the services that most precisely meet their business and IT requirements.


Multi-tenant data centers typically have multiple power connections, redundant battery backup systems, and diesel generators in case of a large-scale outage.

Improved Connectivity

In most cases, customers have the option to work with multiple network service providers, enabling them to build redundancy for business continuity. Automated failover to a secondary provider in the event of a primary service provider outage reduces the risk of costly downtime, while bursting accommodates spikes in traffic.

Enhanced Security

Best-in-class colocation providers have invested in world-class security tools and follow best practices to safeguard their customers’ systems and data.


Customers can quickly add capacity to meet surging demand without capital investments. Provisioning additional WAN links, interconnects, or bandwidth can be as simple as clicking a few buttons on a dashboard or calling the colocation facility. As colo demand increases, some facilities are even adopting a modular data center approach, allowing them to increase available capacity without lengthy construction and installation delays.

Cloud Choice

Cloud computing plays a massive role in most organizations’ IT strategies. Access to a marketplace of public, private, and hybrid cloud providers allows customers to choose the best platform for their applications and data and take advantage of advanced services that provide competitive advantages.

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What To Look For in a Colocation Data Center

While the decision to utilize colocation might be easy, it’s only the beginning of the process. There are a number of factors organizations should consider when choosing a multi-tenant data center.

Location and Security

The facility should be convenient for staff to access but in a location that’s relatively safe from natural disasters. It should have strong physical security, including access controls and protections against brute force attacks. There should also be robust logical security to meet business and regulatory requirements.

Space, Power, and Cooling

Does the colocation facility have enough space to meet anticipated capacity requirements? How rapidly is it filling up? Is there enough power to support growing rack densities? What about power distribution? Does the facility have adequate cooling capacity, and is it energy efficient?


Environmental monitoring can help ensure that equipment is not subjected to excessive heat or moisture. Data center infrastructure monitoring (DCIM) goes even further, providing a comprehensive view of what’s going on across the environment. Monitoring should be available through a web-based interface, and data should be delivered in a standardized format for integration with in-house systems.


A multitenant data center should have redundant power, cooling, and connectivity to minimize the risk of downtime. Just as important, organizations should look at the facility’s maintenance and planned downtime processes and service level agreements.

Additional Considerations

Colocation and The Edge

Industry 4.0 is well underway. More network-connected devices and sensors are integrated throughout global business operations and everyday life than ever before. Couple that with the growth of 5g connectivity, and you get a record amount of data being produced with no slowdown in sight. Companies are adopting edge computing as a means to process data more efficiently. Edge computing involves processing data as close to where it’s generated as possible. Doing so reduces latency, saves bandwidth, and reduces strain on centralized data centers. Gartner predicts that by 2025 75% of all enterprise-generated data will be created and processed outside of a traditional data center. Often, companies will build out edge data centers or utilize micro data centers for edge computing, but edge colocation data centers are also becoming viable solutions.

What Are Edge Colocation Data Centers?

Edge colocation data centers are simply colo facilities located in tier-two markets or underserved areas. They allow companies to deliver content and services more efficiently in markets without robust connectivity infrastructure. This can benefit business operations and consumers alike. Traditionally, colocation facilities have been built in major markets because that’s where the most demand has been. However, as those markets become saturated and the need for effective distributed computing grows, the major colocation providers are exploring expansion.

Managed Colocation Services

Many colocation data centers offer additional services above and beyond the traditional scope of an MTDC. These facilities can be described as offering managed services. Think of them as providing “hands-on” support. The services offered vary from company to company and facility to facility, but common examples include system administration, proactive response monitoring, physical hardware assistance, server backups, and network equipment management. These services can be valuable when there is a need for physical administration in areas where a company doesn’t have a presence, as is common for edge deployments.


If you’re planning a move to a colocation facility, Enconnex can help. We work with some of the biggest colo providers in the industry and can offer expert advice and data center infrastructure solutions to help you maximize the value of your colocation services. Browse our selection of data center products and IT equipment for sale and get in touch to see how we can help.

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Posted by Jerod Green on March 20, 2023

Jerod has been in the data center industry for 10 years and has a passion for manufacturing fiber-optic and copper cabling solutions. As Director of Sales for Enconnex, he helps customers select the right solutions and is involved in the design and installation of enterprise-class network infrastructure.

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