How Our Most Fundamental Services are Supported by Data Center Colocation

Our hyperconnected everydays require that essential services – from healthcare and finance to education and government – run on IT infrastructure that is secure, scalable, and always available. When systems go down, the consequences ripple far beyond IT departments. That’s why more organizations are turning to data center colocation: a solution that lets them house their critical hardware in enterprise-grade data centers without the astronomical costs of building their own. 

This article explores how colocation powers the backbone of our society today, ensuring uninterrupted services and fueling long-term digital growth. 

What is Colocation – and Why Is It Advantageous for So Many Services? 

Data center colocation is the practice of housing privately owned servers and networking equipment in a third-party data center. Instead of building and managing their own data facilities, colocation enables organizations to rent space and access the data center’s redundant assets. 

Having access to a state-of-the-art data center, without the headache of having to maintain it: that’s colocation in a nutshell. It can be the ideal solution for many organizations. Instead of building expensive in-house server rooms, businesses rent space in third-party facilities equipped with redundant power, cooling, physical security, and blazing-fast internet connections. Without bearing the full cost of infrastructure ownership.

When it comes to essential services, colocation goes beyond cost savings. For essential services like education, healthcare, or finance, colocation can be a guarantee for continuity. Colocation makes it easier to adhere to compliance regulations, and the quality equipment provided improves agility and low-latency. All these data center colocation assets improve the delivery of essential services, while infrastructure management is outsourced to experts. 

Services That Benefit the Most From Data Center Colocation

Many services benefit from data center colocation, however, with some services, the stakes are higher. The following essential services are the ones with the most gains.

Healthcare Services 

Keeping patient data safe and accessible at all times requires a serious data center backbone. In healthcare, a system failure isn’t just an IT issue, but in many cases, a patient care crisis. With medical devices that require real-time connectivity, even a short interruption can create a life and death situation. Electronic health records (EHRs), imaging systems, and telemedicine platforms require 24/7 availability. Data center colocation can provide hospitals the scalability and security they need without the burden and risks of keeping data centers on-premises. 

Compliance and security are especially important for healthcare services: they have to adhere to strict patient data protection laws. As telemedicine and IoT devices are becoming widespread, colocation will foreseeably grow more and more critical in the digital future of the healthcare industry. 

Government Services

Governments are going through digital transformation very fast. In order to work dependably, they need better data processing, faster and more secure management of public records, and reliable systems to enable and sustain e-voting. Moreover, citizens now expect seamless online access to services. With government services, not only public trust, but national security can be at risk, so these systems need to stay reliable at all times. 

Take Estonia, for example, often referred to as the world’s most advanced digital society. Nearly every government service – from voting to healthcare – runs online. Behind the scenes, colocation facilities are ensuring that these essential systems stay resilient, even during cyber threats or emergencies.  

In the US, there’s an initiative called the Federal Data Center Consolidation Initiative, which encourages government agencies to prioritize and choose commercial data center solutions over custom-built private data centers. Instead of investing millions into building a private data center from the ground up, government organizations are encouraged to partner up with certified providers. This way, governments can easily meet demand and maintain security and uptime. 

Financial Services

In finance, similarly to healthcare, a millisecond of delay can have grave consequences. In healthcare, it can cost lives, and in the financial sector, such a delay can cost millions. Trading platforms, payment processors, and banking systems demand ultra-low latency and ironclad security. Colocation providers can place servers strategically close to exchanges and internet hubs, slashing delays and keeping transactions flowing. A very good example underlining that milliseconds can cost millions, is the London Stock Exchange Group (LSEG), which lets clients colocate servers in the same facility as its trading engines, turning speed into a competitive edge. 

Colocation also makes compliance more simple with PCI-DSS, GDPR, and SOC2, providing built-in safeguards for sensitive financial data. 

Education and Research 

Education is a cornerstone of a well-functioning society. Universities and research labs are drowning in data. There are many remote learning platforms, and all of them require massive storage and compute power. With education, the challenge is always affordability, and now, it is about finding ways to scale systems affordably. Often, universities and campuses located in urban areas find it difficult to scale their IT infrastructure due to the extremely high cost of real estate, and availability issues. Cost-efficiency is crucial for educational institutions, and scaling as needed is key to providing reliable services. 

Data center colocation can be the solution for colleges and universities as well, because it allows institutions to expand without blowing budgets on campus data centers. Educational and research institutions are already moving their data operations to colocation providers, like the University of Michigan, for example. For institutions embracing hybrid learning and big-data research, colocation is a game-changer. It allows faster research computing, reliable student services, and plenty of room to grow and scale without having to invest in infrastructure upgrades. 

Telecom, Cloud, and Connectivity

With 5G and edge computing on the rise, telecom and cloud providers need distributed, high-availability infrastructure. Location is everything, and colocation can make it easier for providers to deploy servers closer to users, cut latency, and interconnect networks more easily. Looking forward, as IoT and AI demand real-time processing of exploding volumes of data, colocation will be key to delivering the next-gen of connectivity. 

Modern telco architectures demonstrate the critical function of data center colocation in solving last-mile physics problems:

• 5G Edge: Hosting MEC workloads in carrier-neutral facilities enables <15ms latency for URLLC applications while providing power redundancy for distributed RAN architectures

• Cloud Connectivity: Direct Cross-connects (AWS Direct Connect, Azure Express Route) bypass public internet hops, reducing packet loss and improving throughput for east-west traffic. 

• Neutral Hosting: Dark fiber meet-me rooms enable wavelength services between carriers, while synchronization infrastructure supports precision timing (PTP, GNSS)

Key technical tradeoffs emerge between edge facilities (5-10kW/rack) and core hubs (40kW+ for GPU clusters). Colocation now serves as the physical foundation for:

• Hyperscaler local zones and bare-metal offerings

• Programmable interconnection via APIs 

• Sovereignty-compliant cloud landing zones

For infrastructure teams, data center colocation provides the physical layer for hybrid architectures where fiber routes converge, there are regulatory constraints, or sub-millisecond synchronization is required. 

The Future of Colocation 

The next wave of tech – AI, real-time analytics, advanced machine learning – will hinge on low-latency and high-density computing. Power usage effectiveness will be key, and to stay ahead, colocation will be evolving with greener data centers, automation, and more compact cloud integration. 

Sustainability is, and will increasingly be, a very important driving force. Leading providers are adopting renewable energy, advanced cooling, and carbon-neutral operations, aligning with the ESG goals of their clients. 

More and more convenient, colocation remains the strategic choice for a resilient foundation in the future. 

Conclusion

The role of data center colocation in modern infrastructure has evolved from simple rack rentals to an essential component of distributed architectures. The technical advantages address critical pain points for sectors like healthcare (HIPAA-compliant failover), finance (sub-millisecond trading), and government (sovereign data handling). Recent developments in liquid cooling adoption and automated cross-connects reflect colocation’s adaptation to next-gen workloads. While hyperscale cloud dominates web-scale deployments, colocation fills essential gaps addressing hybrid infrastructure management, regulatory compliance, and TCO optimization. 

The operational reality is that most enterprises now require a mix of cloud, on-prem, and collocated assets. As 5G and IoT deployments drive edge demand, colocation providers are responding with microfacility architectures while maintaining core data center SLAs (99.995% uptime, <70ms latency). This positions data center colocation as a persistent layer in the infrastructure stack – now, and in and future – particularly for latency-sensitive and compliance-bound workloads.