In regards to Colocation, the saying: "You get what you pay for...” is especially true. Generally, the least expensive quote does not always offer the best value. In this article, we will cover an array of important topics that affect the cost-to-benefits ratio in an effort to arm you with the necessary knowledge to make educated decisions throughout the process. Whether you are just beginning the quest of determining if Colocation is a viable option for your business, or are just starting to shop the market for providers, this guide highlights some of the things to consider throughout the process.

Meet with the Prospective Teams

Talk with the sales and technical staff to gauge if their knowledge and routines are a match for your business needs, which is important because they will become an extension of your existing team. The staff will help you support equipment, answer questions, and you can leverage them to provide additional insight on the best practices for deploying and scaling your operations.

Schedule a site visit.

A site visit is a must. Evaluate the site and confirm everything is "as promised" while gaining a deeper understanding of what will be available in the future. This is a great time to ask questions regarding the data centers standards on Physical Security, Environmental Protections, and Media Protection Protocols.

Not Every Colocation Provider is Equal

Colocation providers are typically categorized as retail or wholesale. Both play an important role in providing Colocation space to consumers, but serve a very specific subset of the market.

Retail providers are service-oriented offerings and provide term flexibility and á la carte services through a portfolio of standardized products. The pricing model for services has greater transparency than wholesale; therefore, it's more predictable.

A typical purchase will include security management of the facilities and your space, power, redundant power, cooling, staffed NOC, and facilities management. In addition, retail Colocation providers will offer a managed service where they will manage and maintain client servers for an extra cost. This is especially useful for small to medium sized firms with limited IT staff. Space can be allocated in a multi-tenant environment or as a private space. Terms can be shorter or extended as the tenant sees fit.

Wholesale providers, by contrast, are more akin to leasing fixed assets such as plant, property, or equipment (PPE). This relationship differs from the normal landlord and renter relationship. Many wholesalers are structured as a Real Estate Investment Trust (REIT); and most indirect costs are typically passed along to the primary lessee. Since the investor group took on the initial risk of acquiring the land and funding the construction, these costs must be recouped and any additional costs incurred are passed on to the primary lessee in the form of rents and fees.

Costs may include such things as taxes, capitalized property, and maintenance of the building and its grounds. The primary lessee may also be subject to capital improvement costs which would have impact a tenant's Financial Statements. This is an overly simplified explanation as REITs, which are very complex financial structures.

The primary lessee may choose to lease a property for an average range of 15-17 years. The primary lessees will then sublease space to Colocation consumers, as a traditional lease which adds another layer of trickle-down costs. A building, floor, or large suite will then be built to your specifications with cooling and power delivered to the site. You are responsible to build-out the allocated space, maintain the space and its equipment. In this case, the primary lessee may or may not provide security functions. This option is cost effective, if you require space in bulk and are willing to make a long-term commitment of around 10-15 years. Additionally, this assumes you have the necessary resources to maintain and fully staff the IT team.

Summary Retail Wholesale
Upfront costs Lower Higher
Recurring costs Predictable May Fluctuate
Multi-tenant Possible
Large amounts of space Best in Bulk
Short-Term contracts
Long-Term contracts
Service and Support Retail Wholesale
Store data in multiple geographies Not Typical
Remote hands Not Typical
NOC staff Not Typical
Standardized products Not Typical
Security, Building Not Typical
Security, Environment Not Typical

Low Density vs. High Density

Higher density computing is attractive and makes lots of sense, provided the facility is capable of accommodating higher density hardware. A blog post by Equinix detailed their finding on how power density inefficiencies may result in older servers consuming 60% of the energy, but only contributing 4% of the compute capacity. Major sites can reduce CAPEX and OPEX costs by 50% and 20%, respectively, by transitioning from low to high density. The full Equinix post can be found here.

The caveat is that if a facility does not support a high density environment, any potential savings are quickly lost due to increased costs for space and power. Tenants in this situation could potentially become frustrated due to difficulties with expansion. As the tenant transitions or adds equipment they will be forced to purchase more empty space to offset “hot spots” in the data center.

Buy Power Cheaper

If a data center location is flexible, leverage a region where electricity is cheaper to produce. For example, the highest average price per kWH across all sectors (Commercial, Residential, and Industrial) was $26.72, in Hawaii, while the lowest was Washington at $7.08, as of August 2015. The U.S Energy Information Administration Electricity lists these prices monthly and can be found on their website. Look for facilities making a commitment to alternative power such as hydro-power or fuel cells. In addition, look for facilities in cooler areas that can take advantage of free air cooling methods.

If inexpensive, green power is more in-line with your company's culture, look for data centers in geographical regions that satisfy those requirements, typically the Pacific Northwest. If the Pacific Northwest is unsuitable for your new Colocation site, you will want to look for data centers using power derived from solar or wind energy. Providers such as CenturyLink are placing a priority on sustainability and clean energy, moving ahead with significant investments to rethink the design and operation of facilities. Stressing collaboration across the company, the ultimate goal is identifying and implementing actionable “greening” initiatives to reduce carbon footprints and build economically feasible topologies. You can learn more about CenturyLink's commitment to sustainability and exploring alternative energy methods here.

Determine Your Needs

Colocation is highly-customizable and built to suit the needs of each client. Solutions can be built to satisfy the requirements of a startup expecting growth; medium-sized who is expanding market presence domestically; or large, multinational firms who are entering the International markets. It is important to closely analyze your requirements to ensure that what a provider has to offer aligns with present and future needs.

Below are some general topics that should be considered before engaging in the quoting process:

  • Where do you need to Colocate (location)?
  • How often will you require access to your equipment?
  • How much space do you require from the provider?
  • How much power do you estimate your equipment will use?
  • Preference between cabinets, cages, or rooms/suites?
  • How much bandwidth will you require?
  • What are the bursting speeds that you anticipate?
  • What kind of support you will require?

Prioritize your list and keep those priorities in mind as you speak with providers. Oftentimes, Colocation sold on price alone is lacking and will inevitably lead to increased risk of downtime, which can damage your bottom line and result in a loss of credibility among your users.

Typical Costs

Costs for Colocation services vary from provider to provider. The list below has the typical costs you can expect to pay, along with a brief description.

Space: This will be the literal amount of space you require. Depending on the provider, space can be measured in square footage, number of cabinets, size of cabinets, or any combination of the aforementioned units.

Power: This is the amount of power that you will be allocated, usually measured in kilowatts. Like support, it is best to estimate your projected usage and purchase a sufficient amount. If you underestimate your usage, contact your provider and explain the situation.

Connectivity: These are the bridges to connect your equipment located in the data center to the external world. Connectivity may be offered as two services, one for Internet and another for a dedicated line, to connect to your offices. You may also need to purchase dedicated IP addresses.

Support: Colocation is not a managed service unless specifically purchased as one. Estimate how many hours of hands-on-support you need and, if possible, purchase the hours up-front to be more cost effective. The hours purchased will not expire and more hours can always be added when needed. The cost of ad-hoc hands-on-support is expensive and adds up fast.

Setup: Your equipment has to be physically moved and installed in the data center. This will either require time from an internal team or an outsourced IT provider.

Normalize Quotes

Compare service offerings, pricing, support levels, and service level agreements (SLA) and decide which providers meet your needs. You may be tempted to take the cheaper route; however, it is important to normalize all quotes so you are comparing apples to apples. Understand the distribution and allocation model you are paying for. For example, does your price include 100% of distribution and you pay per kw at a retail rate for all overage, or do you get 200% included and no surprises on your billing? If this is unclear, use price per square foot to determine if the rates are competitive. For bandwidth make sure that you are comparing burstable-to-burstable or flat rate-to-flat rate circuits. If you receive a bandwidth quote in GBs and another in Mbps, remember 324 GB is approximately 1 Mbps.

Service Level Agreement (SLA)

It is essential to ensure that you have a detailed understanding of exactly what your potential hosting company offers in their SLA. Ensure you look for SLAs specific to elements such as power, temperature, and humidity. Don’t be afraid to ask for additional terms if the SLA is not sufficient.

Understand the Costs to Expand

Try and estimate the cost for adding additional power or cost to purchase a second cabinet with its own power. Include any surcharges, setup, and support that might be required for adding additional cabinets, power, or cooling. Knowing these charges will help you decide whether the cost of additional services outweigh the cost of moving into an additional cabinet. For larger spaces, also estimate potential construction associated with expanding.


Determine if the Colocation providers offer the ability to quickly extend and connect your colocated equipment to virtual and hosted services. Customers are finding that these services can complement their existing installations by adding on-the-fly virtual services such as servers, storage, and firewalls. Colocation providers are working towards seamless cloud integrations, but some integrations are hit-and-miss so make sure to demo the service.

CenturyLink Hybrid IT Cloud Solution is a fully-managed, integrated, and comprehensive solution that offers the flexibility you need to customize your components and build your optimized Hybrid IT Cloud ecosystem.

Still have questions? Here are some resources that you may find helpful on this topic:

As always feel free to contact us. Experts are ready to help. You can also request a quote for our Colocation and other services or take a free trial test drive!