Colocation is the business of renting space in a data centre, with power, cooling, security and network connections included. The tenant brings its own servers. It is often shortened to colo. A colocation provider rents out a single rack, a locked cage of several racks, or a whole private room, called a suite.
Why not keep servers in the office? An office server room usually has one power line from the grid, one or two internet links and ordinary air-conditioning. A power cut or a cut cable can stop the company's apps. A colocation data centre has redundancy at every point: two power feeds to each rack, batteries and generators, and fibre from many telecom operators.
Take, for example, an online pharmacy based in Ahmedabad. Its app takes orders at every hour of the day, so its servers can never stop. The pharmacy rents 6 racks inside a locked cage in a colocation data centre in Mumbai. A rack is a tall metal frame that holds the servers; the page on server racks explains it. Say the pharmacy pays about ₹1 lakh a month for each rack, plus a charge for the electricity its servers use. In return, the provider supplies power and cooling, guards, cameras and biometric doors. The pharmacy's engineers in Ahmedabad rarely visit. When a disk needs replacing, the provider's staff on site replace it on request. This service is called remote hands.
Many companies share the same building. Locked cages and access controls keep each tenant away from the other tenants' machines. This is called multi-tenancy.
How is colocation different from the cloud? In the cloud, you rent computing, not space. The cloud provider owns the servers, and you pay by the hour for what you use. In colocation, you own the servers and rent only the space around them. Colocation suits a company that wants full control of its own hardware, or that runs its servers all day, every day, so that owning them costs less than renting by the hour. Many companies use both. Some do not even buy the servers: under on-premises as a service, a hardware maker places its machines in the cage and charges for what is used.
For many tenants, the main reason to choose one building over another is the neighbours. Cloud providers and telecom operators keep equipment in the same building. A tenant can join them with a short cable across the hall, called a cross-connect. Many companies also rent racks in a second data centre in another city, joined by data centre interconnect fibre, so that their app keeps running even if one whole building fails.