Colocation is the practice of hosting a site or server in a managed data center in order to take advantage of greater bandwidth, lower latency and better support and service. This practice allows a company to use a third party to handle the logistics of managing information technology issues instead of spending the capital necessary to build a site and department of its own.
One of the biggest advantages of colocation is access to a high-speed Internet backbone. A data center can use economies of scale to install high-bandwidth, low-latency connections for multiple servers, allowing each customer to have their own access to a superior connection. Compared to the cost of installing high-speed lines to each individual company's server on-site, this can offer significant savings. Companies are also freed of the need to have dedicated managers to keep servers and websites online, using the data center's employees to ensure maximum uptime and deal with problems as they arise.
In many cases, the data center provides power, cooling, connectivity, support and security, while the customer is responsible for the server and storage costs. Customers can lease space in server racks, expanding their hardware investments when necessary to compensate for increased loads. Colocation also serves as an off-site backup of important data, preventing a local disaster from taking out company servers or websites.