Any business IT leader involved in maintaining and managing an enterprise data center sooner or later faces the ultimate question: Should you host your data center solutions internally or outsource?
That question is coming up more frequently as businesses embrace digital transformation. Rising adoption of cloud and edge computing, big data and Gen AI-driven solutions leveraging large language models (LLMs) is forcing IT leaders to consider outsourcing to ensure scalability, security, efficiency and cost-effectiveness.
In the U.S. alone, data center outsourcing will grow 50% in the next decade, from $50 billion in 2023 to $75 billion by 2033, according to 2024 data from Precedence Research.
Is data center outsourcing right for you? Getting to the best answer for your organization means assessing the training of your IT staff, compliance requirements, security, maintenance requirements and future needs.
Still, you may be reluctant to turn over control of your company’s data center by using a colocation data center instead. In addition to the perceived lack of control, you may have concerns about potential downtime by relying on a colocation provider.
The good news, however, is that quality colocation services are available that make outsourcing your data center needs less scary. Service Level Agreements (SLAs) specify uptime, connectivity and compliance requirements. Today’s data center outsourcing agreements generally include the day-to-day management responsibility for operating server or hosting platforms, including distributed servers and storage. Many colocation partners also provide a combination of professional services, product support, and ongoing management of computing and storage resources.
Let’s take a look at the main benefits of outsourcing your data center.
What is data center outsourcing?
Data center outsourcing means using a third-party provider to host, manage and maintain your organization’s data center infrastructure, such as servers and storage. Data center outsourcing providers typically offer services such as colocation, wherein your business rents space in a secure, managed facility, as well as cloud computing and managed IT services. The approach helps your business to ensure data security, regulatory compliance, and high uptime so your IT team can focus on core activities. If your organization seeks to handle growing data needs without significant capital investments in an onsite data center facility, data center outsourcing is especially attractive.
What are data center outsourcing models?
Your organization can outsource its data center needs based on the level of control, service and infrastructure you require. The main models include:
Colocation
With colocation, your business rents physical space in a third-party data center to house your own servers and hardware. The colocation provider manages power, cooling and physical security while you retain control over your company’s equipment and software.
Managed hosting
In this model, the service provider owns the hardware and infrastructure while managing day-to-day operations such as server management, maintenance, backups and security. Your business uses the provider’s resources with limited control over the infrastructure.
Cloud Services
Cloud providers deliver scalable computing resources, storage and applications over the internet to your endpoint devices. Your business can use these cloud infrastructure solutions without owning any physical hardware. Public, private and hybrid cloud options are typically available.
Data Center as a Service (DCaaS)
This cloud-based solution offers data center infrastructure, such as storage and computing power, to your business on demand. DCaaS offers scalability and infrastructure management similar to cloud services but allows you to manage your own configurations, networking and often the choice of hardware, offering a more customizable environment than managed hosting.
Hybrid outsourcing
The hybrid cloud colocation model combines in-house data center resources with outsourced services. Your business might maintain critical infrastructure internally while outsourcing certain functions, such as storage or disaster recovery, to a third-party provider.
What are the benefits of data center outsourcing?
Data center outsourcing allows your business to enhance operational efficiency, reduce costs and access cutting-edge infrastructure without significant capital investment. By leveraging the expertise of third-party data center providers, your team can focus on its core competencies while ensuring your data is secure, scalable and effectively managed. Let’s review these benefits:
1. Save money by shifting away from capital expenses
Among the many benefits of outsourcing data center responsibilities is that it saves money and shifts capital expenses – buildings, power, cooling and equipment – to an operational expense. According to Intel Tiber, building a small data center (around 10 racks or 140 servers) costs $200,000 to $500,000, with operational costs of $50,000 to $100,000 per year. Midsize enterprise data centers (up to 100 racks or 1,400 servers) can cost $2 million to $5 million to build and $200,000 to $500,000 a year to operate. A large data center (250 racks and 3,500 servers) can cost tens of millions to build and more than $1 million annually to operate.
2. Free up resources and do more
By outsourcing data center systems and responsibilities, your company can offload these costs, leaving additional spending and resources for other strategic IT initiatives. Your technology team can focus on supporting company objectives and staying ahead of the competition with technology instead of time and resources managing an on-prem data center.
3. Access to state-of-the-art infrastructure
One of the most significant benefits of outsourcing data center services is that your organization can access state-of-the-art servers, networking equipment, and storage solutions while sharing costs with other colocation customers. This arrangement eliminates the need for hardware and software refreshes as well as the significant additional investment needed to keep up with data center demands.
4. Ensure continuity and availability
Top-tier data centers use smart Uninterrupted Power Supply (UPS) systems, battery monitoring devices and intelligent Power Distribution Systems (PDU) to ensure your assets are always available. These technologies also help to reduce the Power Usage Effectiveness (PUE) ratio, which measures energy efficiency. Large-scale data center operators typically consume 100 to 200 watts per square foot of space, enabling them to negotiate more favorable rates with public utilities than individual companies can arrange. Additionally, they’re implementing cutting-edge cooling solutions and energy-efficient systems to reduce power usage and costs. Analysts report that in a data center hub market, power can cost 40% to 60% less than the national average.
5. Decrease the risk of downtime
As any data center manager knows, the cost of downtime is extremely high, and it’s continuing to skyrocket. Every minute counts. In 2024, Enterprise Management Associates research found that unplanned downtime now averages $14,056 per minute, rising to $23,750 for large enterprises. By outsourcing data center operations, your organization can decrease the risk of expensive and unexpected downtime. Your business also has a range of options when it comes to the guaranteed availability and uptime of your colocation services. Options start with a Tier 1 facility with an expected availability of 99.671%, spanning to tier 4 fault-tolerant site infrastructure that delivers an expected availability of 99.995%.
6. Get immediate access
If yours is a growing organization, waiting for the design and construction of additional data center space may not be an option. Instead of waiting up to two years to build data center space, colocation operators can provide your company with an inventory of space and power and deliver flexibility for expansion and scalable growth.
7. Ensure enhanced security
By outsourcing your data center to professional operators with specialized expertise and advanced technologies, you can boost your security. Data center providers typically offer comprehensive security measures, including firewalls, encryption, multi-factor authentication and physical security controls. Additionally, they employ dedicated teams to monitor for potential cyber threats and breaches 24/7, ensuring rapid detection and response to incidents. Data centers also comply with industry regulations and certifications, such as HIPAA, GDPR, PCI DSS, ISO 27001 and SOC 2, providing your business with a higher level of security than they might achieve in-house.
8. Gain expertise and support
Outsourcing a data center provides you with access to a team of experts who specialize in managing complex IT infrastructure. These providers bring years of experience in areas such as server management, data storage and cloud integration, enabling businesses to tap into cutting-edge technologies without needing to build in-house expertise. Additionally, data center outsourcing typically includes ongoing support and maintenance services, ensuring issues are addressed quickly, minimizing downtime. This access to specialized knowledge and round-the-clock support allows your business to focus on its core competencies while the provider handles the technical aspects.
Why choose UPSTACK to help select your outsourced data center provider?
As your organization weighs the decision to expand internally or to outsource data center needs, it’s important to take a serious look at your options based on your business’s needs. By looking at costs versus benefits, you can determine if a colocation facility is best suited to deliver system uptime and connectivity while supporting future growth. Getting it right can leave your organization to focus on other big-picture strategic objectives.
Working with data center experts at UPSTACK offers you a streamlined, efficient and informed process. Our team of experienced technologists, solutions engineers and procurement professionals will leverage their expertise and advanced technology to present you with multiple tailored options based on your specific needs, such as high-density workloads, global infrastructure or disaster recovery. We handle everything from researching providers to comparing quotes to recommending the best fit for your business — all saving you time and effort. Whether you need colocation, direct cloud connections, or multisite deployments, UPSTACK’s deep industry knowledge ensures you get the optimal data center solution.
Ready to outsource your data center operations for future growth? Request more information about our expertise here.
