Colocation at the Core of the Hybrid Enterprise

Hybrid cloud has become the dominant IT operating model for mid-sized and large enterprises.

The hybrid cloud model allows IT leaders to place each workload where it best supports business objectives, whether in an on-premises data center for control and proximity to legacy systems, in a colocation facility for scalable interconnection or due to financial advantages of lease versus build, in the public cloud for elasticity and speed, or at the edge for ultra-low latency and localized processing.

Workload Placement Strategy Matters More Than Ever

Building the proper hybrid configuration requires CIOs and infrastructure leaders to align workload placement decisions with business needs:

  • Supporting modernization initiatives
  • Ensuring security, compliance, and regulatory alignment
  • Delivering reliable performance at scale
  • Enforcing governance and operational accountability
  • Mitigating risk
  • Controlling costs

Achieving these outcomes depends on making well-informed placement decisions across an ever-expanding range of choices.

Each placement decision must consider:

  • Application criticality
  • Data residency
  • Latency requirements
  • System interdependencies
  • Long-term readiness for change

The Strategic Role of Colocation

As hybrid strategies evolve, colocation plays a critical role in addressing business needs that demand control, predictability, and connectivity without the burden of owning and operating physical facilities, for workloads not yet well-suited for the public cloud.

Ideal for Specific Workload(s): Colocation is particularly well-suited for workloads that require specialized hardware, low-latency performance, and regulatory oversight. It’s also a strong fit for legacy systems that are not “well-suited” relative to cloud migration/re-platforming, and for cost-optimized disaster recovery environments, especially when using metered power models that better align costs to actual utilization.

Compliance and Data Sovereignty: Leading colocation providers support a wide range of regulatory frameworks, including:

  • HIPAA
  • GDPR
  • Regional Data Sovereignty
  • Sovereign Cloud Adjacency
  • Auditable SLAs

Third-party attestation or proof of compliance with these frameworks is frequently required.

Network-centric Value: Colocation facilities offer dedicated infrastructure in close proximity to cloud on-ramps, compliance-specific zones, and high-density interconnection hubs. This can significantly improve network performance, resilience, and access to partner ecosystems across hybrid and multicloud architectures.

Financial Flexibility and Predictability: Colocation enables a shift from capital-intensive infrastructure ownership to more predictable, usage-based operating expenses. Costs are commonly structured around cabinet or rack space, provisioned power (committed kW or metered kWh), and cross‑connects for network. The availability of actual usage-based billing varies by provider and contract type, making careful cost comparison and workload-based forecasting essential.

Operational Offload: Colocation allows enterprises to delegate the physical management of space, power, cooling, and security. This frees internal teams to focus on core business services while retaining control over their hardware stack.

Evaluating Colocation Providers

Today’s colocation market is highly diverse. Providers differ in connectivity models, regional and global footprint, cloud adjacency, and operational maturity. Modern colocation delivers far more than “ping, power, and pipe,” enabling multi-cloud flexibility, high availability, and enterprise-grade resilience.

Selecting the right partner is a mission-critical, multi-year decision, not a short-term cost exercise.

Evaluation must go beyond costs for rack or cabinet space, provisioned power, and network cross-connects. Criteria must include:

  • Business Needs: Alignment with organizational growth plans, workload strategy, and long-term service expectations
  • Security and Compliance: Ability to meet regulatory requirements, protect sensitive data, and maintain robust physical and logical security controls
  • Performance and Availability: Proven interconnection capabilities, network redundancy, proximity to cloud on-ramps, and consistently low-latency operations
  • Scalability: Ability to expand power, space, and interconnection options within and across campuses and facilities to meet evolving demands and avoid future relocations while still supporting AI/high-density growth
  • Governance: Contractual clarity, operational transparency, SLA maturity, and mechanisms for ongoing accountability
  • Service Level Agreement (SLA) Specificity: Uptime guarantees, historical performance records, remedies for non-compliance, and transparent maintenance/incident communication processes
  • Operational Visibility and Automation: Access to real-time monitoring portals, API-driven provisioning and telemetry, and integration with infrastructure-as-code workflows
  • AI and High-Density Readiness: Support for high-density workloads, including advanced cooling methods such as direct-to-chip liquid cooling or immersion systems
  • Sustainability and Decarbonization: Renewable energy sourcing, Power and Water Usage Effectiveness (PUE/WUE) metrics, net-zero commitments, and transparent environmental reporting
  • Bare Metal and Edge Service Options: Availability of on-demand bare metal or edge compute services for rapid deployment
  • Cost: Competitive, predictable pricing models with clear billing terms

GTSG Best Practices For a Structured Colocation Provider Selection Process:

  • Cross-functional representation from network, security, application, and business continuity teams.
  • Templates, evaluation tools, and industry benchmarks help assess resiliency, contract flexibility, financial viability, and interconnect ecosystem maturity, ensuring providers align with your long-term hybrid strategy.

Connectivity and Latency: Key Drivers

Workloads with demanding performance requirements, such as real-time processing, transactional systems, or latency-sensitive applications, depend on low-latency connections to users, public cloud services, and critical data sources. Colocation facilities that double as, are located near, or are located within (what are for practical purposes) major carrier hotels or hyperscale cloud regions enable these connections with greater speed, reliability, and cost control.

Not all workloads demand high-performance interconnects, and not all colocation providers offer an equally robust network ecosystem. Placement decisions based on detailed workload analysis, rather than assumptions, ensure better alignment with business needs, avoid unnecessary overengineering, and drive both cost savings and stronger operational outcomes.

The chart below illustrates sample workloads and how they may benefit from premium interconnects versus those that can operate effectively with standard connectivity, aligned to business needs, performance requirements, and cost efficiency:

Pricing Models and Flexibility

Colocation pricing rarely generates the same level of surprise or frustration seen with public cloud. This is mainly because colocation billing models are tied to physical, predictable factors such as power, space, and connectivity.

Still, understanding contract structures is critical, as differences in pricing models can have a significant impact on long-term economics.

Flat-rate pricing simplifies budgeting and forecasting, but metered power models may offer more favorable economics for variable workloads, such as idle disaster recovery environments or low-utilization systems. Modern colocation contracts should support flexibility, particularly the ability to scale capacity down as cloud adoption or workload optimization efforts evolve.

IT organizations must evaluate pricing structures that align with:

  • Business Needs
  • Usage patterns
  • Long-term hybrid strategy

Hidden charges, such as cross-connect fees, burst pricing, or minimum commitment thresholds, should be carefully analyzed during provider negotiations to avoid surprises later.

CAUTION: Without accurate workload forecasting, overprovisioning remains a persistent risk, both financially and operationally.

Beyond pricing, providers should demonstrate continued investment in their interconnection ecosystem and offer visibility into operational performance metrics that support governance, service assurance, and continuous optimization.

Performance Validation

Assessing a colocation provider’s performance is critical to maintaining reliable service, ensuring optimal connectivity, and supporting future growth. Performance evaluation should align with business needs and account for the operational risks of hybrid infrastructure.

Key considerations include:

  • Security & Compliance: Confirm regulatory adherence and test access controls.
  • Performance & Latency: Benchmark real-world workload traffic for throughput and latency.
  • Scalability: Verify available capacity commitments and cross-region expansion options.
  • Governance & Reliability: Review SLA enforcement history and validate reporting transparency.
  • Risk Management: Assess monitoring for bottlenecks and confirm mitigation strategies.

Evaluating these factors during provider selection helps mitigate long-term risks and supports the successful operation of workloads placed in colocation environments.

GTSG Best Practices For a Structured Performance Validation Framework:

  • Baseline workload performance in the current state
  • Model expected behavior in the target environment, be it colocation, cloud, or on-premises
  • Proactively detect risks such as latency sensitivity, resource contention, or integration bottlenecks, before commitments are made

Building a Workload Placement Strategy

Effective workload placement strategies evaluate a range of factors, including performance requirements, latency sensitivity, application interdependencies, and business criticality. Hybrid cloud architectures provide flexibility to optimize for agility, governance, performance,  resilience, availability, recoverability, and cost across multiple hosting venues.

Colocation is often the most effective solution for workloads that:

  • Are sensitive to latency or require predictable network performance and high availability
  • Must comply with specific regulatory or data sovereignty requirements and demonstrate recoverability
  • Cannot be re-platformed or refactored for native cloud architectures but still demand resilient infrastructure

Workload Placement Strategies should:

  • Analyze current-state environments
  • Anticipate performance implications and availability requirements
  • Validate placement decisions through real-world testing, including resilience and recoverability

This structured, data-driven approach minimizes risk and ensures alignment with strategic business objectives including availability.

GTSG builds Workload Placement Strategies that determine “what runs where” based on:

  • 37+ years of experience
  • Successful transitions at every scale
  • Business-driven, technology agnostic approach to determining the right mix of on-prem, cloud, and colocation
  • An operational perspective that keeps steady state operations top of mind: performance, resiliency, regulatory concerns, cost

GTSG Migration Services

When the decision to either add colocation to your ecosystem or increase your existing use of colocation has been made and workloads have been identified as benefiting from being hosted there, GTSG’s Migration Services will get you there:

  • Meticulous planning mitigates risk while providing end-to-end visibility and readiness
  • Stringent adherence to plans & processes keeps surprises to a minimum
  • Precise execution & testing by skilled resources secures successful outcomes

Let’s Talk!

GTSG partners with our clients to guide colocation strategy, workload placement, and hybrid IT transformation. We offer independent, experience-based insights supported by deep technical expertise and industry perspective. To explore how we can support your next move, contact us at Partners@GTSG.com.