John McKown brings up some good points (see link) with regard to colocation vs managed servers, most of which I agree with.
I would add that while colocation might be the wrong thing for many customers, it is the right thing for customers who have a managed growth path they are taking. Some companies do start out with shared hosting, later dedicated hosting, and graduate into the full coloation service.
Hosting internally can be quite expensive once you add in the costs of building and maintaining an equipment room (or small data center).
Another option that can be done is the movement from shared hosting (virtual website hosting) to dedicated virtual server hosting (via VMware, for example), then moving to dedicated managed servers, and the eventual step into colocation.
This can work well for many reasons:
- Customer has need to have a presence on the Internet - shared hosting works to create this presence
- Customer begins to outgrow what can be done via this shared environment but is not ready for the ongoing expense and investment into dedicated servers, so using a virtual server technology like VMware, the hosting company can create their ‘dedicated’ environment at a fraction of the cost of a dedicated server
- Eventually customer starts to outgrow this type of ‘shared’ hosting and it is time to migrate into a dedicated managed server platform.
In the steps above, the hosting company is taking care of the maintenance, backups, and patching required to keep everything running.
As Mr. McKown said - look beyond the monthly fees and take into account the costs of doing all of this inhouse - quickly it becomes quite expensive to have full control.
Thank you, Mr. McKown, for putting to words what I have not been able to do so far.