Managed Hosting vs. Colocation: Saving Money by Buying Your Own Servers

“Cloud computing” is one of the biggest buzzwords in IT today, and small businesses are prime targets for companies that market managed hosting services. The thought of moving most or all IT functions off-premises, doing away with your capex equipment budget for servers and having no IT worries may sound heavenly at first. However, you may discover that colocation, which involves owning your own servers and placing them in your datacenter of choice, provides more cost savings over the long term than using managed hosting.



In essence, cloud computing provides IT activities as online services, and cloud service providers (CSP) deliver these services using a wide range of models. With managed hosting, your CSP provides, or “hosts,” the hardware and software for your computing environment. Managed hosting gives you as much control as you want over your applications, outside operating systems and resources, but the CSP maintains your equipment and its provided software and development platforms.

With colocation, your company essentially rents a spot in a CSP’s datacenter. You purchase and rack your own equipment within a rented cabinet space, and you also configure your own software. If you handle particularly sensitive data, like health information or financial information, then you can sometimes buy wholesale datacenter space from a CSP and then set it up however you like. Within the datacenter, the CSP gives you a power source, cooling mechanisms, an uplink port for your network connection and IP addresses. Everything else is your company’s responsibility.

With colocation, IT managers enjoy the low latency, high bandwidth and 99.9-percent uptime that a larger facility can provide. However, colocation requires your company to have a hands-on IT presence. Your IT staff doesn’t have to worry about maintaining an on-premises datacenter, but they still need access to the colocation facility for repairs, maintenance and upgrades. The CSP’s job is to maintain the datacenter’s resources and to ensure physical security. When your equipment breaks down, you have to fix it unless you’re paying extra for the CSP to handle it.


Is Colocation Right for Your Company?

If your company has minimal IT staff or lacks the experience to set up and configure its own equipment, then you may need the assistance that managed hosting can provide. Managed hosting may also be good if you don’t already own or plan to purchase IT equipment. Most CSPs follow a pay-as-you-go model that charges you a certain amount based on usage, so consider which services you want to host outside your company and which services you want to keep in-house.

Alternatively, colocation can be good if you already own your own equipment. If you have capital to purchase or lease equipment, then you can make a bigger upfront investment and then enjoy lower colocation prices in subsequent years. Ultimately, you’ll pay more for managed hosting over time, but you’ll pay more for colocation at the beginning. Some organizations start with managed and, as they grow, switch to colocation for the cost savings.

Choosing the Right Facility

The most important piece of information that you need is an accurate estimate of how much traffic will travel between your servers and the Internet each month. If you lowball your estimate, then your CSP may not allot enough resources for you, and your company could end up paying overage charges. If you choose colocation, then you’ll need a facility that’s reasonably close to your company’s location. Companies that operate in urban areas tend to have the best success with colocation.

Bigger datacenters tend to have more resources to offer, and they also allow you to choose from a wider range of on-network connectivity providers. Go into colocation with an accurate traffic estimate, and find a good-sized datacenter with many connectivity options. As long as you maintain your equipment, the right facility ensures that your network is always on, always fast and always affordable.


Sweat equity creates cost savings in IT just as it does when you’re remodeling a house. If your business has the personnel for hands-on work, then buy your own servers and consider colocation. Over the long run, even though you may have to pay for equipment upfront, colocation will save your business a significant amount of money over managed hosting.


Image by RobH from Wikimedia Commons


About the author: Bill Hardwick is an IT consultant who helps companies make the cloud transition. He recommends purchasing refurbished servers from xByte to increase colocation cost savings. Find more information at



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