Beginner guides
What Is Colocation? A Beginner’s Guide for Australian Businesses
6 min read
Colocation lets a business place its own servers in a professionally operated data centre with reliable power, cooling, security and connectivity.
What colocation means
Colocation, often shortened to “colo”, is a service where your business owns or leases its IT equipment but installs it inside a third-party data centre. Instead of keeping servers in an office, storeroom or small server room, you rent secure rack space along with power, cooling, physical security and network access. The data centre operator looks after the facility, while your team remains responsible for the servers, storage, operating systems and applications. Australian providers such as NEXTDC and Equinix use this model to give customers access to purpose-built infrastructure without requiring them to construct and operate an entire data centre.
What is included in a colocation service
A colocation agreement usually includes a defined amount of rack space, an agreed power allocation, resilient electrical feeds, environmental cooling and controlled physical access. Connectivity is normally purchased separately through carriers, internet providers, cloud connections or cross connects available inside the facility. Additional services may include remote hands, equipment receiving, secure storage, monitoring and private meeting or build rooms. The exact inclusions vary, so buyers should ask whether pricing covers power consumption, installation, access cards, cross connects and after-hours assistance. A low headline rack price can become less attractive once recurring service charges are added.
Why businesses use colocation
The main benefit is access to infrastructure that is difficult and expensive to reproduce in an ordinary office. A professional data centre can provide backup power, redundant cooling, fire detection, layered security and multiple network providers. Colocation can also improve scalability because a customer can start with part of a rack and expand into full racks, cages or private suites. It is commonly used for business-critical systems, private cloud, backup infrastructure, disaster recovery and workloads that must remain close to public cloud platforms. It can also help organisations keep control of hardware while avoiding the operational burden of running a facility.
Colocation compared with public cloud
Colocation and public cloud solve different problems and are often used together. In public cloud, the provider owns the underlying servers and the customer pays for virtual resources or managed services. In colocation, the customer controls the physical hardware and usually commits to rack space and power. Colocation may suit stable, high-utilisation workloads, specialised appliances, licensing constraints or systems requiring predictable performance. Cloud may suit rapid experimentation, variable demand and managed services. A hybrid design can connect colocated systems directly to cloud platforms through private on-ramps, reducing reliance on the public internet and creating a more controlled network architecture.
What to check before choosing a provider
Start with your current rack space, power draw, network needs and expected growth over the next two to three years. Confirm whether the facility can support your required power density, carriers, cloud platforms, compliance obligations and access arrangements. Review the provider’s certifications, maintenance model, service-level commitments and approach to redundancy. Location matters as well: a nearby facility can make physical access easier, while a second site in another risk zone may be better for disaster recovery. The best colocation option is not simply the largest provider; it is the facility whose power, connectivity, resilience and commercial terms match your operating requirements.
Frequently asked questions
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