What is colocation (colo)? Features + How it helps your business

Running and maintaining a data center for your business can get expensive. That’s why most people start investigating solutions to find out what “colo” is and see if it can help.

The easy definition: What is colocation exactly?

Colocation, or colo, is when a business rents space in a data center but owns the hardware. The provider runs the facility, while the business keeps full control of its servers.

Enterprises use colocation to get data center reliability without the cost of building their own. 

Imagine: You can place your own servers in a third-party data center. The provider manages the facility, while you retain control of the hardware.

Key features of colocation services

Enterprise-grade reliability

Colo facilities include redundant systems that keep workloads running when local utilities fail. Reliability at the facility level makes it easier for enterprises to scale without worrying about local utility limits.

Carrier-neutral connectivity

A colocation network usually supports multiple carriers. Enterprises gain resilience by connecting to more than one provider.

Physical security

Colo facilities apply strict physical security, giving enterprises more protection than typical office buildings. Strong safeguards lower the risk of theft or tampering with sensitive hardware.

Scalable footprint

Colocation services let businesses expand their footprint without building new facilities. Enterprises can start with a small presence and increase capacity as demand rises.

Service level agreements

Providers use written SLAs to guarantee stable infrastructure. The contracts hold providers accountable if power, cooling, or connectivity fall short.

How does colocation work?

Colocation works by splitting responsibilities: Enterprises own the hardware, and providers manage the facility. The process follows a clear sequence that starts with space and ends with ongoing operations.

Lease the space

An enterprise contracts for rack units, cages, or suites inside a colo data center. The agreement specifies available power, cooling, and bandwidth.

Ship and install hardware

The enterprise delivers servers, storage, and networking gear to the facility. On-site staff provide secure access for setup.

Connect to the network

Enterprises connect their equipment to the colocation network. Many extend this link into their enterprise network backbone for low-latency performance.

Operate and maintain

The provider manages building infrastructure, while the enterprise manages its own servers. Colocation providers offer support that lets IT staff handle maintenance without constant site visits.

Providers also deliver layers of colo security, including controlled access and surveillance, so enterprise hardware stays protected.

Colo networking integrates with external connections such as cloud or VPN. Enterprises often run latency-sensitive applications inside colo for stability.

Most colocation facilities include redundant systems to prevent outages. Enterprises can review data center redundancy standards to understand the level of protection each provider offers.

Colocation vs. cloud: What’s the difference?

The difference between colocation and cloud is who owns and manages the hardware, as illustrated in this table:

Colocation networks give enterprises control at the cost of flexibility. Cloud services trade control for faster scaling. Many enterprises now use both models together as part of a hybrid IT strategy.

Pros and cons of colocation

The value of colocation depends on the level of control an enterprise requires.

Pros:

• Direct control over enterprise-owned hardware.
• Data center reliability without building one yourself.
• Colo security features that meet compliance standards.

Cons:

• Upfront cost for servers and equipment.
• Less flexibility compared to public cloud.
• Ongoing monthly fees for space, power, and bandwidth.

What industries use colocation the most?

Industries with strict rules, sensitive data, or heavy performance needs use colocation the most. These sectors demand control that the cloud alone can’t provide.

Finance

Banks and trading firms use colocation to process transactions quickly and reliably. Colo security and backup systems keep services running, even when power or internet connections fail. Regulations also push financial institutions to keep their hardware under direct control.

Healthcare

Hospitals and clinics turn to colocation to protect patient data. Healthcare laws demand strong safeguards, and colo facilities provide them. Organizations can keep their own servers in a colo setup while relying on the data center for physical security and reliable uptime.

Government

Government agencies use colocation when cloud services don’t meet their security needs. Colo networks give them a way to run sensitive applications in a controlled environment. Facilities that meet federal or regional standards make compliance easier.

Technology

Tech companies often need low-latency performance for apps, platforms, or online games. Colocation gives them stable connectivity and predictable performance. By owning the hardware, they get control without the cost of running their own data center.

Is colocation right for your enterprise?

Colocation is right for enterprises that want hardware control with reliable performance. Some enterprises pair colocation with network isolation to keep sensitive data secure.

Colocation is not right for enterprises that want fast scaling or pay-as-you-go pricing. Those needs fit better with cloud services.

Some enterprises solve staffing gaps by pairing colocation with hardware as a service.

Best practices for choosing a colo provider

Enterprises should weigh more than cost when they pick a colocation partner. The right provider keeps workloads safe, steady, and connected.

Check security and SLAs

A colo provider must guarantee protection for your servers. Confirm their safeguards and SLAs before signing.

Review power and redundancy

Enterprises should review how a provider handles power loss, cooling issues, or building failures. Facilities that include backup systems for power and cooling reduce the risk of outages.

Confirm carrier options

Enterprises need choice when they connect to outside networks. A good provider offers multiple carriers and cross-connects. Flexible carrier access helps reduce cost and avoid outages.

Consider managed options

Some enterprises want control but don’t have the staff to manage it all. Providers that offer managed network as a service take on tasks like monitoring and lifecycle support. Colo becomes easier to run when the provider handles those responsibilities.

What colocation looks like when it’s managed for you

Colocation becomes more powerful when it pairs with managed services. Enterprises keep control of their hardware while handing off the heavy lifting of day-to-day operations.

A managed provider handles tasks like monitoring, troubleshooting, and lifecycle support. Colo networking then feels less like a burden and more like an extension of the enterprise backbone.

Enterprises that choose this model gain a stable infrastructure without tying up IT staff on routine work. The result is predictable performance with less complexity.

How colocation fits into a broader enterprise network

Colocation solves the hardware side, but enterprises still need networks that reach every site and cloud service. Strong backbone design links colo sites, offices, and cloud providers to create predictable performance across the entire footprint.

Colocation becomes part of a larger enterprise strategy instead of a one-off project when paired with cloud and managed networking. The model scales as the business grows, without burying IT staff in operational work.

Do you still need an ISP with colocation?

You may still need an additional ISP connection if your business uses colocation.

Colocation provides space, power, cooling, and a port for cross-connects, but internet access is not always included. Most enterprises need connectivity both at the data center and at the office.

At the data center

Many colocation plans are “space and power only.” To bring servers online, you must contract IP transit from a carrier in the meet-me room or purchase blended bandwidth from the provider.

Some providers sell blended bandwidth or blended IP services as managed links that combine multiple upstream carriers or peering paths. Others limit you to a single-carrier option. In both cases, you need a cross-connect and a separate agreement; without this step, servers stay offline.

At the office

Even if applications run in the colo, employees still need internet access to reach them. Enterprises usually take one of two paths:

• Maintain or upgrade their office ISP and connect to the colo using VPNs over the public internet.
• Order a private circuit (ethernet, MPLS, etc.) from the office to the colo, and configure the colo as the egress point for internet traffic if needed.

Many businesses also keep a local office ISP for SaaS and web access, which avoids pushing all traffic through the colocation provider.

For resilience and compliance

Enterprises may require multiple ISPs for redundancy. Diverse connections reduce outage risk, support DDoS protection, enable BGP multihoming, improve latency, and help meet strict uptime SLAs. Certain industries mandate this level of redundancy for compliance.

Questions to ask your colo provider

• Is IP transit included, or do I need to contract a carrier?
• What are cross-connect pricing and lead times?
• How is bandwidth billed (committed rate, 95th percentile, or burst)?
• Do you offer blended bandwidth or single-carrier service?
• Are private waves or MPLS available between my sites and the colo?

Bottom line

Colocation does not eliminate the need for an ISP. Most enterprises maintain one connection at the colo and one at the office, adding more links only when compliance or resilience requires it.

Meter Connect: Easier access to high-speed internet for all networks 

Running colocation alone often creates a maze of service dependencies. Projects drag when no single party takes accountability. Colo is what many enterprises turn to for control and compliance, but it only delivers if the connectivity around it is dependable.

Colocation can solve your hardware needs, but it creates new connectivity challenges, and that's exactly what Meter Connect addresses.

One partner. One plan. No bottlenecks.

With Meter Connect, you don’t just drop servers into a rack. You get:

• One contract, all major ISPs: Get fiber, coax, and wireless, all under one roof. We’ll match you to the best option and manage installation end-to-end.
• Real, local expertise: We track performance across the whole city so that you don’t have to guess what’s actually fast or reliable on your block.
• White-glove support: From pricing through post-installation, our team works alongside yours. No more waiting on hold with a dozen carriers.
• Flexible, future-ready solutions: Whether you’re scaling across offices or adding remote work backup, we help you build a resilient connectivity stack.

Plus, Meter’s enterprise networking solution extends that strong ISP foundation by also handling switching, routing, Wi-Fi, and network monitoring.

With both in place, you get a business strategy that scales without adding complexity.

Start the process off the right way.

Request a quote from us today on Meter Connect.

Frequently asked questions

What does colocation mean?

Colocation means placing your own servers inside a third-party data center. You keep control of the hardware, while the provider handles power, cooling, and physical security.

How is colocation different from a traditional data center?

Colocation is different from a traditional data center because you own the hardware, and the provider runs the facility.

What’s the benefit of colocation over cloud?

The benefit of colocation over cloud is control. You manage your own servers while still using secure power and cooling.

How does colocation support multi-site networks?

Colocation supports multi-site networks by giving you a central hub to connect branches, data centers, and the cloud.

Can I use colo without in-house IT?

You can use colo without in-house IT if your provider offers managed colocation services.

What is a colo network connection?

A colo network connection links your hardware in the facility to the internet or private networks.

What’s the difference between colo and managed hosting?

The difference between colo and managed hosting is ownership: In colo, you own the hardware, but in hosting, the provider does.