So - you know shared hosting no longer cuts it, and your single office connection is not enough to host a web server - so which is best, leasing a dedicated server or buying your own server and co-locating it someone's data center?
For those that are unsure of the difference, here it is in a nutshell. When you co-locate, you are simply renting space within someone else's facility to store your own server or servers. It's like a high tech gym locker that you are renting all or part of to house your servers. You either ship or deliver your server to your provider. Additional services provided with co-location vary from host to host but it certainly won't include the actual server. With a dedicated server you are getting all the features of co-location, plus the actual web server itself.
Which is better?
While it certainly depends on your particular needs, and there are excellent situations for both the dedicated server option is quickly becoming a better choice in more and more cases. If you already own a web server, or cluster that you prefer to use, then obviously co-location may be your best choice. If you are considering buying new equipment and shipping it off for co-location - please reconsider. The prices and equipment available in dedicated hosting these days are outstanding plus relieve you of the burden of hardware. Most hosts keep identical spare parts on hand for the types of servers used and are quick to react if something fails. Depending on your arrangement with a colocation deal hardware failure could mean paying to have a server shipped back (or you drive to get it), having it fixed yourself then sending it back to the data center.
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