Where it all began...
Roughly 10 years ago, most companies who had IT departments also had small data or server rooms. In these rooms were a variety of servers and devices doing things from email, web hosting, application hosting, file sharing, and PBX. The room required constant air conditioning, a special high speed internet link, and power backup (UPS). Sounds good, right? Wrong. The room was a hassle. AC problems, power outages, network outages, and so on. If something needed to be rebooted at night, an employee had to drive it. Fire suppression? No way, if your office went down in flames, you lost everything.
As the internet became more and more important, more and more businesses needed the same kind of hosting infrastructure. This shared needed spawned an industry now referred to as data center colocation or server colocation. Colocation companies build large superior redundant facilities with amenities you would never have received in your small company computer rooms. These colocation facilities would have multiple fiber feeds coming in, multiple generators, Halon Fire Suppression, 24x7 onsite staff for remote hands assistance, triple redundant cooling infrastructure, and hardened physical security. By selling fractional space in this "shared" datacenter, end-users received a great service. For approximately the same cost of running a local server room, you could put your equipment in a top-tier data center facility with features exceeding your own capability.
Colocation services have become even more cost effective due to recent advances in virtualization and processor density...
5 years ago, a significant IT foot print could have filled an entire rack cabinet. 3 years ago, that same foot print could have filled a half cabinet. Now with virtualization and quad-core CPU's, an entire IT environment can fit inside 2 or 3 servers, taking up only a quarter cabinet or as little as 3U. Since colocation pricing is based on space, the smaller space you need, the less you pay.
By outsourcing your entire environment to a data center facility you limit your infrastructure of the office to just a Point-to-Point internet circuit, or a WAN circuit with VPN appliance. Everything else goes away. That's a huge cost savings. The data center model also makes it easier for SAS70 compliance if you use a data center provider who is SAS70 certified.
