On-Premise Data Center vs. Colocation: Pros and Cons

Park Place Hardware Maintenance

Parker July 01, 2022

There’s no denying the noticeable shift over the past few years from traditional data centers to colocation hosting. According to a 2019 report by Gartner, enterprises with older data centers would rather have someone else manage their physical infrastructure than build/expand on their own due to high capital costs. And for many businesses today, colocation permits them to do just that! 

Colocation centers are no longer reserved for big corporations with unlimited resources. These widely available facilities provide the infrastructure and security of a dedicated data center without the high costs of maintaining such expansive premises. Keep reading for more information on the differences between on-premise and colocation centers, as well as the pros and cons of each! 

What’s the Difference in On-Premise Data Center vs. Colocation? 

Before making a decision on either in-house or colocation services, one must first understand what those two options mean and how they are different. 

An on-premise data center, or enterprise data center, is a group of servers that are privately built, owned, and operated. This means that servers live in-house within a room of an organization’s own business infrastructure. 

Conversely, colocation is the practice of housing privately-owned servers or networking equipment in a third party data center. So rather than infrastructure being on-site, businesses “co-locate” equipment by renting out space in a remote facility, or colocation center. In this scenario, businesses typically purchase their own equipment including servers, storage, and firewalls, but pay a colocation provider for the space, cooling, power, bandwidth, and physical security provided to them. Furthermore, with colocation the individual is responsible for setting up and configuring their server and maintains ownership of all hardware/software settings for the equipment going forward. 

Both on-premise and colocation can provide your business with the IT infrastructure it needs. The model you choose will likely depend on the level of security required to meet compliance standards as well as the cost structure of your organization. Let’s take a closer look at the colo vs. data center pros and cons to see how the two models compare. 



Greater Control

On-premise allows companies to have full control over their data and who has access to their systems. This means you get to decide when and how to modify, update, or expand. This is particularly beneficial for organizations with valuable, proprietary assets or sensitive customer information that must be handled according to strict compliance regulations. 

24/7 Access

On-premise hardware allows staff to access physical servers whenever maintenance or troubleshooting is necessary. It also means that data center issues and server failures can be addressed much more quickly. 


High Cost of Labor

Your organization will have to hire and retain a full internal IT staff to manage and secure every aspect of your in-house infrastructure. Aside from being time-consuming, this becomes extremely expensive very quickly. 

High Capital Expenditures

The construction and operation costs of building and maintaining an enterprise data center facility are often much higher than investing in colocation. 

Physical Space Limited

If expansion is not an option or is altogether too expensive, your organization will thus be confined to its current space. This places a cap on potential business growth.  



Economies of Scale

Colocation service plans are comprehensive packages, providing built-in benefits like support, security, redundancy, and connectivity at either a bundled or reduced cost in comparison with on-site hosting. Furthermore, shared facilities reduce utility costs, as they’re spread across multiple customers and procured at volume discounts. 

Increased Security

High-end security staff, cameras, and technology available to provide a higher level of protection than what organizations would be able to afford on their own. 

Improved Connectivity

Carrier-neutral data centers provide a broad range of connectivity options for customers. With multiple internet service providers, network services, and cloud platforms to choose from, colocation customers can easily build the network infrastructure to meet their specific needs. And with the help of cross-connections and hybrid/multi-cloud architecture, companies can fully optimize their workloads for improved speed and functionality. 


Colocation allows users to expand without having to take on capital expenditures. So, in the case of sudden company growth, your IT infrastructure can expand to support it for a significantly smaller investment. Colocation can also be a step toward cloud migration. If your company is looking at cloud computing in the near future, colocation provides a smooth transition by allowing you to move your equipment to an offsite facility. 


Less Control

With IT infrastructure at some distance from staff, maintenance and troubleshooting becomes more difficult. Access is much more limited, and if the distance between your offices and the colocation facility is considerable, there’s potential for it to affect your IT staff’s regular maintenance and troubleshooting schedule. 

Higher Start-Up Costs

Colocation hosting requires much higher start-up costs than if renting servers from hosting companies due to initial set-up fees and licensing costs. 


If your business has relatively stable needs, colocation is often the better option than on-premise hosting both in terms of cost and resource allocation. What should remain on-premise are those business processes that are mission-critical and require greater oversight and control. But it’s important to remember that traditional data centers and colocation are not mutually exclusive. 

CTOs should be thinking about colocation not as an “or” but rather an “and” strategy to supplement traditional data center hosting. Still, trends do show that colocation facilities will continue to grow and work towards integration with cloud services to draw more and more businesses away from enterprise data centers. 

Supplement your colo operations with IT infrastructure managed services or data center professional services from a trusted provider like Park Place Technologies. Our Professional Services offer anything you may need to get started with colocation, including: 

Get in touch with our team today to understand how we can support your increasingly complex needs!

About the Author

Parker, Park Place Assistant