Cloud Vs. Colocation: Which Is the Right Choice for Your Business?

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Colocation vs Cloud solution

There are various approaches to hosting and managing your IT infrastructure, but it ultimately comes down to control. While on-premise setups involve keeping physical hardware and other infrastructure elements on-site, cloud computing provides computing resources in a virtualized environment, reducing maintenance tasks for your IT team. A third approach to IT hosting and management has increased in popularity in recent years. colocation (or colo, for short) involves keeping physical hardware in a third-party data center but lets you maintain full ownership and control of this infrastructure, providing a middle ground between on-premises and full cloud deployment.

But which approach is best for your business? Learn more about cloud vs. colocation below and how APIs can improve business performance.

What Is Cloud Computing Vs. Colocation?

Cloud computing is the delivery of computing resources via an internet connection. Unlike on-premises, where you keep resources in-house, a cloud service provider delivers infrastructure like servers and networking equipment through virtualization, meaning you aren’t responsible for hardware costs. You pay the cloud provider a monthly licensing fee for its services rather than purchasing new equipment for your business premises. Popular cloud platforms include Amazon Web Services, Google Cloud Platform, and Microsoft Azure.

colocation is a more recent approach to IT hosting and management that involves keeping physical hardware in an external data center facility, away from your business location. The data center is responsible for looking after your infrastructure and providing power, cooling, network connectivity, and other IT management services in exchange for a fee. However, you still maintain full ownership of your infrastructure in the data center, similar to the on-premises model.

Now you know the differences between these IT deployment models, but which one is best for your business use case?


As previously mentioned, choosing the right deployment model for your business depends on how much control you want over your IT environment. On-premises gives you the most control because you own and keep infrastructure in-house. That means you won’t transfer sensitive business data from systems to a third party that might not have the same security standards as you do.

colocation gives you more control over the cloud model. While the data center is responsible for providing resources for infrastructure, you maintain ownership of all your physical hardware. Cloud providers, on the other hand, give you access to their own virtualized resources, such as cloud servers and cloud storage, so you don’t own anything. While this model might sound like the most cost-effective one because you don’t have to purchase physical equipment, you’ll need to pay a provider to access their cloud services (see below).


colocation is cheaper than cloud computing because it doesn’t provide equipment like servers and network infrastructure. You pay a data center facility to look after your physical hardware off-site and ensure it functions correctly. However, this deployment approach can work out more expensive than the on-premise model because of the monthly fees you pay to the data center. With on-premise, there are no monthly maintenance fees, just upfront costs when purchasing physical hardware.

The main difference with cloud computing pricing is that you pay a cloud provider a monthly fee to provide computing resources over the internet and to look after those resources. That can be expensive if you have a small business. It can also be difficult to get out of a contract with a cloud hosting provider because of something called vendor lock-ins. You might pay a penalty or have to fulfill your agreement before switching providers or changing deployment models.

When choosing between colocation and the cloud, the former provides more cost savings.


Availability in IT deployment refers to the availableness of your data in various scenarios. For example, being able to access data after a cyberattack. With on-premises, you are responsible for ensuring availability in different business situations, but colocation and cloud deployments involve delegating this responsibility to a third-party provider.

Under the colocation model, a data center takes care of availability. Depending on the facility, you probably won’t be able to achieve as much availability as when using a cloud service provider, unless the facility uses the correct design and redundancy. Determine whether higher availability is worth paying more for cloud services.


colocation is similar to on-premises when it comes to security. Though you rent a space in a real-world data center facility, you still maintain ownership of all your infrastructure. That allows you to create your own security protocols and keep this responsibility in-house. There are drawbacks to this method, however. Because you are in charge of security, your IT team needs to update the latest security patches, manage equipment like firewalls, maintain data storage, configure anti-virus software, fix bugs, create disaster recovery frameworks, and keep your systems safe.

Cloud hosts take care of security for you (that’s one of the things you pay for!), so you can free up resources for your IT team and focus on other areas of your business. The problem with cloud security, however, is that cloud providers might not use the same protocols as you, which might put your sensitive data at risk. Cloud environments can also be easier for bad actors to infiltrate.

Data Governance

You can easily adhere to data governance legislation like GDPR and CCPA if you have an on-premises or colocation environment. Again, you own your systems and data, so you can implement governance principles that keep data secure when transferring it from one location to another. That can prevent expensive penalties for data governance non-compliance.

Cloud computing is a different kettle of fish because you share data with an external provider, which might go against data governance guidelines. Your provider might then share your data with another organization, making it difficult to maintain ownership of that information.


Being able to scale infrastructure up and down in your deployment set-up depends on the functionality and capabilities of your physical hardware. colocation, like on-premise, requires you to invest in new infrastructure when it can’t handle workloads efficiently or impedes business continuity. That’s because you are responsible for purchasing equipment, not a third-party provider.

Cloud infrastructures are easier to scale because virtual machines (VMs) offer more resources than physical ones. Plus, a hosting provider has to meet your business needs as per your service level agreement (SLA). Work with a cloud provider if you want maximum scalability.


You will likely need to ingrate systems and services for business growth. Both the colocation and cloud models help you achieve this goal. colocation is a good choice for integrations requiring high bandwidth and low latency. Plus, because you own infrastructure, you can keep physical hardware in a data center facility that improves integration. It’s also easier to integrate systems with other data centers in the colocation model.

Cloud service companies offer data connectors that help you integrate cloud-based systems and software. Although you won’t own this infrastructure (or the connectors), you can still achieve your integration goals and improve connectivity and business processes by synching different virtualized applications.

How APIs Can Improve Colocation and Cloud-Based Deployment

Application programming interfaces (APIs) let you exchange information between two or more applications in your colo or cloud-based environment, improving business performance and digital transformation.

Without APIs, these applications might exist in silos, unable to communicate with one another. For example, you can use an API to connect two cloud-based applications in a fully virtualized environment quickly and securely. You could integrate a cloud CRM with a cloud data warehouse, allowing you to generate business intelligence from CRM data for more informed decision-making. Alternatively, you could connect an on-premise system with the cloud for more data storage or enhanced scalability.

APIs can be challenging and require extensive programming knowledge. Using an API management platform, however, streamlines the creation and maintenance of APIs.

Final Word

The cloud and colocation provide alternatives to traditional on-premise setups by either virtualizing resources or keeping them in a third-party data center. While cloud computing requires you to relinquish control of data security and other responsibilities, this model offers excellent scalability advantages. Colo, on the other hand, lets you maintain ownership of physical hardware and works out cheaper than cloud hosting, even if it doesn’t provide as many data availability benefits.

Choosing the right deployment approach depends on your budget, requirements, security preferences, whether you need to adhere to data governance guidelines, and how much control you want to exert over your IT setup.

DreamFactory is a secure and scalable API management platform that improves business performance for various deployment models. Talk to an engineer to learn more, or start your free 14-day trial right now. 

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