Basically, colocation is a service wherein a small company is made to rent or co-own a Web server, which could be originally owned and run by another business. Many companies offer services to other firms or to individuals who need to own their own server.

Colocation could be managed or unmanaged. Managed colocation services are those that provide full service to a customer. The colocation provider agrees to take care of everything from maintenance to provision of software and applications. The user could rest assured that the server is properly taken care of all the time. This service is best for small companies without sufficient and competent IT support team.

The unmanaged colocation service is the more preferred by companies or individuals with technical expertise and skills. This colocation service allows the user to take a greater control of how the service would be used. The customer would be required to provide and use its own software, tools, and applications. This service is less expensive compared to the other.

There are usual costs associated with the use of colocation servers. These are rental fees and connection charges. Before you get into any colocation agreement, it would be appropriate if you would first be more exposed and familiar with the two.

Rental fees are costs associated with having the server located or stored in the colocation providers own datacenter. The measurement is usually the height of the server being hosted. In most cases, servers are in 1U or 2U configurations. In other cases, servers could be significantly larger, about 3U or 4U in configuration. In simple terms, a user is made to rent the use of the Web server. This is actually what colocation is all about.

Connection charges also apply. Instead of measuring total volume of gigabytes being transferred every month, connection average could be preferably used. For example, in a 1 mbp/s connection, the user has an average of 1 megabyte of data transferred every second for a whole month. The concept of fees associated with colocation could get further complicated.

There could be issues about how the data transfer is actually measured. Some take the amount or volume of bandwidth used within a month. The number is divided by the number of seconds in the month. The more popular option is the use of the 95th percentile wherein the bandwidth measurement is actually taken every five minutes. By month-end, top 5 readings are discarded. The highest remaining reading that is left is what is used in billing the user.

The second issue regarding colocation involves burstable connections. There could be a higher transfer rate when there is a sudden burst. Using the 95th percentile, there is no need to make sure the connection is burst more often.

In the end, costs are influenced and dictated by the colocation provider. You have the option to agree or disagree on how billing would be computed. It is important that before you get into the colocation agreement, you fully understand what is up for you in your use of the service.