Colocation vs. On-Prem: What’s Best for Your IT Strategy?

Posted On August 7, 2025, by Megawire Marketing Team

Deciding between colocation and on-premises solutions is a critical choice for any Chief Information Officer (CIO) or Chief Technology Officer (CTO) in the manufacturing sector. Each solution offers unique advantages and considerations, but the right decision depends on the specific IT requirements of your organization. This guide explores the pros and cons of these strategies, with a focus on data center colocation, to help your business scale effectively and securely.

Understanding the Basics

What is Data Center Colocation?

Colocation involves renting physical space in a third-party data center to house your servers and other IT equipment. You retain ownership and control of your hardware while benefiting from the provider’s infrastructure, including power, cooling, security, and connectivity.

This option is ideal for businesses aiming to reduce operational burdens without compromising on performance, security, or compliance requirements. Colocation also provides scalability, allowing companies to expand their digital footprint without the need for additional real estate or infrastructure.

What is an On-Premises Solution?

On-premises hosting refers to managing your servers and IT infrastructure within your own facilities. This gives your organization total control over its environment but comes with significant overhead costs, maintenance responsibilities, and limited scalability.

Benefits of Data Center Colocation

For mid-sized manufacturing businesses, colocation offers a compelling alternative to on-prem solutions. Here’s how it stands out:

1. Cost Efficiency Without Compromising Quality

Building and maintaining an in-house data center is expensive. From real estate and utility costs to IT staff salaries, expenses can quickly add up. Colocation, on the other hand, spreads these costs across multiple tenants while still delivering access to state-of-the-art facilities and infrastructure.

Example: A colocation provider’s cooling systems and energy-efficient operations significantly reduce electricity expenses compared to an enterprise-specific server room.

2. Enhanced Security

Data center colocation offers advanced physical and digital security measures, such as:

24/7 surveillance and monitoring
Biometric access control
Multilayer fire suppression systems
Compliance with industry standards like ISO 27001 and PCI DSS

For manufacturers managing sensitive customer data or intellectual property, this level of security ensures operational integrity and regulatory adherence.

3. Scalability for Growth

Colocation facilities are designed to adapt to your business’s evolving needs. Whether you need to add more rack space or scale your bandwidth, colocation providers make it simpler and faster than expanding on-prem facilities.

Example: If your manufacturing output grows 20% within a year, colocation allows you to rapidly scale your IT resources without major capital investments.

4. Improved Uptime and Reliability

With redundant power supplies, backup generators, and uninterrupted network access, colocation facilities offer nearly 100% uptime. Unlike on-prem solutions, which are prone to outages due to equipment failures or environmental conditions, colocation minimizes disruptions and ensures business continuity.

5. Expert Support and Maintenance

Colocation providers often offer managed services like remote hands support, infrastructure monitoring, and maintenance. This eliminates the need for a large IT team on-site, allowing your in-house staff to focus on strategic initiatives rather than troubleshooting hardware issues.

6. Geographic Flexibility

Manufacturing businesses relying on real-time data transmission can benefit from colocation facilities located in strategic regions, enabling low-latency communication and enhanced connectivity.

7. Environmental Sustainability

Many colocation providers prioritize eco-friendly practices, including renewable energy sources and energy-efficient cooling systems. This support aligns with corporate sustainability goals while minimizing operational carbon footprints.

Drawbacks to Consider with Colocation

While colocation boasts numerous advantages, it is important to consider the limitations:

1. Initial Setup Costs

Migrating hardware to a colocation facility requires upfront investments in transportation and installation. For manufacturers with older or highly specialized hardware, compatibility issues may necessitate additional upgrades.

2. Long-Term Contracts

Colocation often involves long-term contracts. Organizations must carefully assess future IT needs to avoid being locked into arrangements that may limit flexibility.

3. Reduced Hands-On Control

Unlike on-prem solutions, colocation requires remote hardware management. While providers offer efficient tools and support, some companies may prefer direct, on-site access to their servers.

Benefits of On-Premises Solutions

Although colocation offers extensive scalability and cost advantages, maintaining an on-prem IT infrastructure has its own merits:

1. Complete Control

On-prem allows businesses full oversight and management of their IT environment. This may be especially critical for manufacturers with proprietary technologies or stringent compliance requirements.

2. Custom Environments

With on-prem hosting, organizations can fully customize hardware, software, and security measures to align with specialized production schedules or industry regulations.

3. Latency-Free Performance

Without external dependencies, on-prem infrastructure can deliver quicker response times due to reduced latency.

Limitations of On-Prem Hosting

However, managing IT infrastructure in-house comes with its own set of challenges:

1. High Operational Costs

Building, staffing, and maintaining an on-prem data center requires significant upfront and ongoing investments.

Example: A dedicated IT team for a 24/7 operation incurs higher overhead compared to sharing the costs in a colocation model.

2. Scalability Challenges

Scaling an on-prem data center requires costly expansions to meet growing demand. This introduces delays and logistical complications, inhibiting agility.

3. Limited Resiliency

An on-prem facility is vulnerable to local disruptions like power outages, flooding, or fires. Recovery options are often less robust than those in enterprise-grade colocation centers.

Hybrid Models as a Viable Alternative

For many manufacturers, a hybrid approach leveraging both colocation and on-premises solutions provides the best of both worlds. By outsourcing core functions to a colocation facility while retaining critical applications and sensitive data on-prem, businesses can optimize costs, performance, and security.

Example: A mid-sized manufacturer could utilize colocation for disaster recovery and backups while maintaining production data on-prem for latency-sensitive processes.

Key Considerations When Choosing Colocation

To determine if colocation aligns with your IT strategy, evaluate the following:

Compliance Needs: Does the provider support certifications pertinent to your industry (e.g., ISO 9001, PCI DSS)?
Scalability Options: Can the facility accommodate future growth with minimal disruption?
Proximity: Is the data center located near your primary operations for low-latency access?
Uptime Statistics: Does the provider offer a Service Level Agreement (SLA) guaranteeing near-100% uptime?

Actionable Next Steps for CIOs and CTOs

Conduct a detailed cost analysis comparing colocation, on-premises, and hybrid options.
Assess the scalability of your current IT infrastructure against future business goals.
Shortlist colocation providers with proven reliability and industry-specific expertise.
Engage IT leadership to prioritize security and compliance in vendor selections.

Make an Informed Decision for Your IT Strategy

Colocation offers mid-sized manufacturers a powerful solution to streamline operations, reduce costs, and enhance infrastructure scalability. By understanding its pros and cons in comparison to on-prem hosting, business leaders can confidently choose the best approach for their unique needs.

Whether you opt for colocation, on-prem, or a hybrid model, your IT strategy should prioritize scalability, security, and operational resilience to keep pace with manufacturing demands in a rapidly changing digital economy.

Schedule a call today with one of our team members to discuss your Managed IT services needs with Megawire – For more details, Click Here.

This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your Megawire IT advisor.

Megawire is a full-service Managed IT services provider. We primarily service all of Ontario and the rest of Canada, the US, and Australia virtually. Our team provides IT infrastructure assessments, network security audits, cloud computing solutions, and IT support for businesses of all sizes and industries.

If you would like to schedule a call to discuss your Managed IT services with one of our team members, please complete the free no-obligation meeting request. – For more details, Click Here.

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