co-lo or rent

A

azzavps

New member
Whats the tipping point for people...eg

when do you decide that its better to co-locate your own hardware or keep renting??? OR the other way around.

personally im loving renting.. so much nicer having the hardware someone elses issue.
 
Having done both, hopefully I can be of some insight for you.

When we first started out, everything was rented - at that point places like RackShack and ServerBeach were the places we rented through. As time progressed, and businesses changed, we utilized a local datacenter to house our own equipment. When we first jumped into our own environment we had 15 servers - the downside being we had the front the money for all 15 servers & the cage fees initially, but over time, we made that money back.

Fast forward 2 years, and we're at just over 80 servers at a co-location down the road from us. The good side of things is that our bandwidth didn't go up much, the rates remained the same for the cage, and we were making money to buy the additional servers outright.

Go forward another year - hardware is now cheaper than dirt to buy, and the hardware we had was quickly being outdated. This lead to a forced buy of new hardware - another outlay of money, or go back to renting.

Part of the decision process was staffing at the facility. We had enough staff running our support and billing services, and we were fine for admins, but everyone was remote except for 2 people that were within 30 minutes of the datacenter. This was an issue, as if both people left on vacation, there's nothing that anyone remotely could do. Factor in hardware changes, bad memory, etc etc and the decision was made to go back to renting machines.

Now we rent in about a half dozen datacenters, all with 30 minute or less on SLA's (some with 15 minute hardware replacement SLA). We have hundreds of servers and VPS machines to manage, and everything is done remotely.

Does it cost more? Sure it does - a lot more - but not having to fret about who can get to the center to change out memory, or major hardware failures etc, it's worth the cost.

When you start to become the big fish in the pond, you can get some better rates at the datacenters too - so that's always a good thing.

If I had it do over, I'd never have bothered with Co-location. We would have continued to rent, and put the money away for a rainy day.
 
I wouldn't say there's bigger writeoffs.. there's definitely more going in the COGS column (Cost of Goods & Services) - but since we purchased hardware in the past, we were able to amortize over a period of time.

I can definitely say we spend a lot more on providing service than we did in the past, but peace of mind balances it out :)
 
Depends on how much the hardware costs. But to be honest, I would rather colocate and own the hardware, having some soft of physical asset is a good thing. Especially in an online business
 
If you go with colocation you should go with a local facility or with a facility where you have local personnel who can access it quickly, more the better (should certain employees not be available).

If colocating ensure you have enough spare funds readily available for new hardware parts as well as for remote hands should you not have anyone available to swap them out internally.

If you want a more "relaxed / laid back" then it is better to go with renting. Personally this is what I prefer myself.
 
Cloudrck said:
having some soft of physical asset is a good thing. Especially in an online business
Click to expand...

This makes zero difference when it comes to taxes as you can write off your rent on equipment just as you would your purchase of hardware.
The only time physical ownship of hardware comes into play is when you go to sell the company - more assets available - however in todays market, most hosting companies devalue the hardware so much that it is of little concern. When selling/buying a web hosting company, the only thing looked at is the total income amount - even expenses are hardly looked at any more. The reason is because whoever is buying you, they'll have their own equipment and staff - thus your expenses are no longer their expenses.

Physical Assets are much different when it comes to online companies, and an even bigger difference when it comes to a virtual company such as Web Hosting.
 
handsonhosting said:
When selling/buying a web hosting company, the only thing looked at is the total income amount - even expenses are hardly looked at any more. The reason is because whoever is buying you, they'll have their own equipment and staff - thus your expenses are no longer their expenses.

Physical Assets are much different when it comes to online companies, and an even bigger difference when it comes to a virtual company such as Web Hosting.
Click to expand...

Exactly as all we look at is how many clients and what is the income, as these clients will be migrated to our servers, so no need for their servers.

Also a good majority of online ecommerce businesses are dropshipping, so all the seller will have is a domain, website and a list of suppliers and maybe a customer base.
 
There are many factors to look at -- such as:

1) Capital outlay vs operating expense - do you have the cash to buy equipment? There is a big push to move expenses from one large outlay + smaller over time (colo) to little to no upfront and more over time (dedicated OR better yet, cloud).

2) Do you have the knowledge & experience to deal with hardware config and ongoing maintenance? Keep in mind this isn't software, or web server config, etc. Do you want to replace chips at 2:00am on a Sunday (because it always breaks at the worst possible time) with clients calling asking every 32 seconds if it is done and for a status OR do you want have a 'server' company take care of the hardware?

IMO - it comes down to RISK. If you are willing to take the risk of using your hardware that you have maintain and are responsible when it goes down, you can lower your costs a little and put a little more cash in your pocket. However, when the server goes down, you'll be the one fixing it.

There are many ways to do run the business. We often times take older hardware that the client is done with and sell/give it to someone as long as they want to colo it. As long as they understand what they are getting into - everyone comes out ahead. Customer gets a 'free' server & we get a colo client.
 
CeraNet said:
There are many ways to do run the business. We often times take older hardware that the client is done with and sell/give it to someone as long as they want to colo it. As long as they understand what they are getting into - everyone comes out ahead. Customer gets a 'free' server & we get a colo client.
Click to expand...

Bonus!


We started renting Cobalt Raq's back in 2001. We've rented servers from various providers (rackshack.net / dedicatednow / etc..) up until a few years ago when we started purchasing our own equipment and collocating it. It's helped up to grow tremendously however it hasn't been without issue (as with any endeavor).

It really is a buyers market right now. The influx of low cost colo has resulted in a some of the best deals for leasing dedicated servers that I've have ever seen.

The above being said there are benefits and detractors for both options.
 
I would suggest to get a colocation if you can afford it. Colo gets cheaper on the long run if you are planning to use it for a long time.

As mentioned before, a physical access to the server is almost a must for colocation unless it's managed by someone else.
 
If your near your datacenter and can drive down there immediately if hardware fails then go for co-lo as it's also cheaper in the long run, alternatively make sure your DC has similar parts which you can buy off them if HW fails and replace for you if your not close to the DC. Otherwise renting may be the best option and of course make sure they have hardware SLA :)
 
Very well put, that sums it up very well!

handsonhosting said:
Having done both, hopefully I can be of some insight for you.

When we first started out, everything was rented - at that point places like RackShack and ServerBeach were the places we rented through. As time progressed, and businesses changed, we utilized a local datacenter to house our own equipment. When we first jumped into our own environment we had 15 servers - the downside being we had the front the money for all 15 servers & the cage fees initially, but over time, we made that money back.

Fast forward 2 years, and we're at just over 80 servers at a co-location down the road from us. The good side of things is that our bandwidth didn't go up much, the rates remained the same for the cage, and we were making money to buy the additional servers outright.

Go forward another year - hardware is now cheaper than dirt to buy, and the hardware we had was quickly being outdated. This lead to a forced buy of new hardware - another outlay of money, or go back to renting.

Part of the decision process was staffing at the facility. We had enough staff running our support and billing services, and we were fine for admins, but everyone was remote except for 2 people that were within 30 minutes of the datacenter. This was an issue, as if both people left on vacation, there's nothing that anyone remotely could do. Factor in hardware changes, bad memory, etc etc and the decision was made to go back to renting machines.

Now we rent in about a half dozen datacenters, all with 30 minute or less on SLA's (some with 15 minute hardware replacement SLA). We have hundreds of servers and VPS machines to manage, and everything is done remotely.

Does it cost more? Sure it does - a lot more - but not having to fret about who can get to the center to change out memory, or major hardware failures etc, it's worth the cost.

When you start to become the big fish in the pond, you can get some better rates at the datacenters too - so that's always a good thing.

If I had it do over, I'd never have bothered with Co-location. We would have continued to rent, and put the money away for a rainy day.
Click to expand...


My opinion: I feel renting is great for anyone who's new to the hosting industry and trying to build their client base for a few reasons; A) Your costs aren't as high as colocating since you're renting the servers as they're ordered from you and you can cancel them too. B) You don't have to worry about providing hardware if anything goes bad and either driving to the datacenter or hiring remote hands. C) Easy to utilize their support when you're still a small host.

I've had two hosting companies and the first one we focused on renting for a while, built up our client base, our profits, etc. Once we had the money and the staff we slowly starting doing both, colocating the hardware we know would sell quickly and renting the rest. Eventually we moved to only colocating our equipment. That company before I sold it had a little under 200 servers, and then we also had VPS clients.

As I noted above, Handsome lays this out already very well.
 
I think that renting is great for somebody that is new to the hosting industry and wants their host to do things for them (such as managing the network, etc).

I think co-lo is for users that are a bit more advanced, can get to the datacenter to replace parts (or can afford remote hands).

Starting with renting is a good idea.
 
handsonhosting said:
This makes zero difference when it comes to taxes as you can write off your rent on equipment just as you would your purchase of hardware.
The only time physical ownship of hardware comes into play is when you go to sell the company - more assets available - however in todays market, most hosting companies devalue the hardware so much that it is of little concern. When selling/buying a web hosting company, the only thing looked at is the total income amount - even expenses are hardly looked at any more. The reason is because whoever is buying you, they'll have their own equipment and staff - thus your expenses are no longer their expenses.

Physical Assets are much different when it comes to online companies, and an even bigger difference when it comes to a virtual company such as Web Hosting.
Click to expand...

You're also not going to get a loan if you don't have physical assets... if you ever need one for whatever reason - I know a few places that were having that problem.
 
As far as colo, it is expensive at first but in the long run will pay off, with rent servers you keep paying and eventually pay more than the server itself that you could of bought and colocated for a smaller fee monthly.
 
slashpro said:
You're also not going to get a loan if you don't have physical assets... if you ever need one for whatever reason - I know a few places that were having that problem.
Click to expand...

Not entirely true. We've applied and received a number of them over the years from our bank. Maybe it's because they see the cashflow that goes through their bank that they grant the loan, but the physical hardware didn't come into play. The only thing they wanted to see was our business plan, our expansion plan and how we were going to pay things back.

While a physical asset is a great thing to have a loan against, it's not required. Much like with the credit cards, it's not required to have physical hardware - we haven't had physical hardware in nearly a decade. Never an issue with the bank either.
 
Co-location is better option if you have extra money to invest for your server requirement. It can cost less recurring cost then regular hosting. But sure is knack if cannot maintain the node.

It is important to look after backup with bad RAM's, router issues, etc.
 
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