Choosing Between Data Center vs Colocation and Which is Right for Your Business?

In today’s fast-changing digital environment, every business faces important decisions on the IT infrastructure. As your company expands, it’s more important than ever to have a scalable, secure and affordable infrastructure.  

Getting to the chore of choosing between data center vs colocation is one of the company’s biggest questions. Both good ideas, but do you require one more than the other?

In this blog, we will look at data centers vs colocation from the ground up, with statistics and expert insights to back up those differences.  

At the end of it all, you should be a bit clearer about which option most closely lines up with the goals of your business.

What Is a Data Center?

A data center is a physical location that stores computing machines and their related hardware equipment.

It is a business facility that controls the usage of and owns its IT infrastructure.  

When organizations decide to put up a data center, they own all of the equipment, the security and maintenance.

It is thus favorable for businesses that have specific regulatory requirements or a need to set up customized IT infrastructure.

But data centers vs colocation is not cheap to operate.

The amount of money it takes to manage a data center from the initial capital outlay to the ongoing expenses for power, cooling and staffing can amount to an expensive proposition.  

Gartner found that 45 percent of large companies still use private data centers for super secure work.

Amazon’s AWS and its Enterprise Grade Infrastructure

Let’s take a real-world example of Amazon AWS’s Data Center as Enterprise Grade Infrastructure.

Amazon’s cloud services use powerful, secure data centers to deliver world class infrastructure.  

With their reputation for being secure, scalable and efficient, AWS’s data centers vs colocation provide businesses with confidence to work on a global scale.

AWS is a great example of a fully managed cloud service but for those that aren’t ready to make the full switch to the cloud; colocation may be the right hybrid solution.  

It lets businesses benefit from some of the same security and scalability with the added benefit of their own hardware in the shared facility.

What Is Colocation?

Colocation is the cost effective and scalable solution in which businesses lease their IT infrastructure space in a third-party data center.  

This model is about hosting your collocated business on the colocation providers servers and equipment, along with the physical security, power and cooling, while you are responsible for your own servers and equipment.  

The global data center colocation market is valued at USD 72.98 billion in 2024 and is expected to grow to USD 205.65 billion by 2033.

It’s a sign that businesses are increasingly opting for colocation so they can scale without spending money on costly infrastructure.

IBM’s Global Data Center Colocation Solutions

One major example is IBM, which provides colocation services internationally.  

IBM offers companies the ability to rent space in their state-of-the-art facilities, with enterprise grade infrastructure without the capital expense of owning a data center vs colocation.

IBM's global colocation services help businesses leverage their IT needs as they grow without the upfront cost of building their own data centers.

Key Differences Between Data Center vs Colocation

To understand the major differences between data center vs colocation here’s a comparison chart:

Cost Implications of Data Center vs Colocation

When it comes to the choices that are made, one of the largest factors to take into account is cost.  

From purchase of the land to developing the structure of the data center up to procurement of necessary equipment and then hiring qualified IT professionals are usually capital intensive.  

However, colocation can slash the initial costs by up to 40%, according to figures collected. Since you only pay for space and utilities that you want, your business can cut out the costs associated with owning and maintaining a facility.  

Scalability and Flexibility of Colocation

Over time, your business size is bound to expand and so does your requirement of its services.  

Colocation is ideal where one party has limited capability for implementing their own IT infrastructure since it is a scaling and easy to implement solution.  

It is pretty simple to add additional servers where it is not necessary to acquire more physical space, cooling and power expenses.  

Colocation has an on-demand infrastructure design since it permits companies to scale at will without the burden.

According to Equinix, data centers vs colocation too will be able to provide flexible scalability options for businesses.  

How to Choose Between Data Center vs Colocation

Business Scalability

Do you want to plan for advances and fast-paced growth?  

If so, colocation gives you the flexibility you require to satisfy your needs on this front.

Control and Compliance

Do you need more control of your infrastructure as a critical operations and security component?  

In that case a private data center vs colo might be right for you, particularly if your business must adhere to regulations such as HIPAA or ISO.

Long-Term Costs

Although a data center vs colocation provides total control the costs relating to this may make up for the benefit in the long run.  

The traditional approach to balancing control and cost efficiency in an enterprise IT architecture will find 60% of organizations adopting a hybrid colocation or private data center arrangement by 2025.

When Should You Choose a Data Center?

There are sectors in which a data center vs colocation is preferable.  

Large organizations with core business operations and embedded in industries such as financial services and healthcare desire to own rather than rent the data center to ensure security and compliance are top-notch.

This is quite right if your business requires a level of full control over the kind of hardware, software, and the legal requirements for hosting your business.

When Is Colocation the Better Choice?

When organizations are seeking to reduce their expenditure, colocation is a preferable option for them.  

Colocation can operate their IT infrastructure more efficiently and effectively and gain access to some of the best data center facilities globally.  

It is most suitable for businesses that can’t afford to invest heavily in capital expenditure for infrastructure and have no intention of constructing their own centers but still require stability and security of outsourced performance.

Make the Right Choice Between Data Center vs Colocation for Your Business

Finally, the last question determining whether a company should use a data center or colocation is a matter of your business.  

When you are choosing between data center vs colocation, there is nothing as overwhelming as the decision in between.  

As such, this really depends on the specific needs and financial capacity of the business, ultimately the vision that has been set for it.  

If you require a higher degree of control and are willing to absorb the expense, then deploying a data center may be the solution.  

But if it comes to growth, affordability and ease of access to great infrastructure without being forced to shell out millions, colocation hosting is the best option for most upcoming enterprises.

In a constantly changing technological environment and as companies grow, colocation provides a level of freedom and yet delegation that is required.  

There are ways, however, to achieve the best of both worlds: while keeping colocation for its simplicity, cost effectiveness and flexibility and maintaining private data centers for their security, resilience and control.