When businesses consider colocating cost for their servers in a data center, one of the first questions they often ask is: How much does a colocation price typically cost?
While models vary from provider to provider, the bulk of the cost can usually be traced back to one fundamental resource—electricity. Power drives everything inside a data center, from the servers themselves to the cooling systems that keep them running efficiently. But power isn’t the only factor in determining the colocation price. Ultimately, colocation costs balance three primary elements: electric power, space, and bandwidth. Let’s break down how each plays a role, and why colocation price differs depending on geography and infrastructure.
Power: The Largest Driver of Colocation Price
Electricity is almost always the most significant factor in colocation price. Servers require continuous power to run, and cooling infrastructure consumes additional electricity to maintain optimal temperatures. For high-density deployments—where racks are filled with power-hungry equipment—the cost of electricity can scale dramatically.
What makes electricity especially tricky is that rates are not uniform across the country. Power prices vary by state, region, and even by utility. For example:
- Northeast (e.g., New York, Massachusetts): Electricity prices are among the highest in the country due to demand density, older infrastructure, and regulatory costs.
- Texas and Utah: These states benefit from abundant natural resources and more favorable energy markets, which translates into significantly cheaper electricity rates.
- West Coast (e.g., California): Power is more expensive due to heavy regulation, environmental initiatives, and high demand.
Because of these variances, colocation providers in high-cost regions often have to build the bulk of their colocation price around power consumption. Conversely, in markets where electricity is inexpensive, the emphasis may shift to other resources.
How Some Providers Structure Colocation Price
Different colocation companies structure their offerings differently based on their markets. In high-cost electricity markets like the Northeast, providers may bundle bandwidth and rack space into their base colocation price but charge a premium for power usage, since power is the limiting factor. In contrast, in regions like Texas or Utah where electricity is cheaper, the balance shifts: physical space becomes more valuable because data centers can operate racks more cost-effectively.
This difference in market dynamics explains why colocation price can appear inconsistent across different regions—it’s a matter of which of the three cost drivers (power, space, bandwidth) is in shortest supply.
Bandwidth: The Internet Backbone Factor
While power usually dominates colocation costs, bandwidth introduces another layer of complexity. Colocation price is heavily influenced by proximity to major internet backbones. Data centers located near or on top of fiber hubs can often secure cheaper bandwidth in larger volumes, while facilities located farther away must pay more to connect to backbone networks.
In practical terms, this means that a data center with low-cost power but located far from major backbone hubs may end up charging more for bandwidth. Conversely, a facility in a high-cost electricity market but sitting directly on the fiber backbone can offer lower-cost internet services, which offsets some of the higher power expenses.
Ultimately, there’s a balancing act at play: power, space, and bandwidth must all be optimized to deliver competitive colocation price.
The Importance of Carrier Gateways and Procurement
Another key factor in colocation price comes down to how providers procure services from carriers like Verizon. Smart colocation providers research where a carrier’s main gateways are located, because these hubs determine the cost of access.
For example, in Manhattan, Verizon’s main gateway used to be at 111 8th Avenue, but it has since shifted to 60 Hudson Street. Today:
- To reach 111 8th Avenue, Verizon must backhaul access to 32 Avenue of the Americas, their closest POP, which itself backhauls from 60 Hudson Street.
- This difference has major pricing implications. A 1Gbps circuit could cost $600 per month more at 111 8th, $400 more at 32 Avenue of the Americas, and $0 extra inside 60 Hudson Street.
For web hosts that don’t do their homework, this can mean dramatically higher colocation price when building a BGP-4 multihomed network. At Metanet Hosting, we avoid this pitfall by strategically colocating in 60 Hudson Street, where we benefit from the lowest possible Verizon rates. Additionally, we maintain a presence in 111 8th Avenue using legacy fiber from before Verizon consolidated its gateway, following the purchase of XO Communications. This dual-location strategy allows us to secure optimal colocation price while preserving legacy connectivity advantages.
Metanet’s Strategic Approach in NYC
At Metanet, we’ve designed our colocation offerings with these dynamics in mind. Being based in New York City, we operate in one of the most challenging markets in terms of electricity costs. NYC power rates are among the highest in the nation, making power consumption a central factor in colocation price.
However, our location provides significant advantages in bandwidth and space:
- Proximity to the fiber backbone: By strategically positioning our infrastructure in specific telco hotels in Manhattan, we’re sitting directly on top of major internet exchanges. This means our bandwidth costs are significantly lower when purchased in volume, and we’re able to pass those savings on to our customers.
- Optimized space usage: While NYC real estate is notoriously expensive, many data centers are concentrated on the West Side and in downtown areas where space costs are comparatively more reasonable than Midtown or other premium districts. By carefully choosing our data center locations, we’re able to balance space costs and keep colocation price competitive.
- Our Metanet Network, a specialized software driven network, circumvents some of these costs. Once a provider taps into our network, they are able to reach any network in the world at the click of a button, provision their applications and software over it, to any other end internet device. Due to additional peering traffic routes over private networks instead of the public internet drastically reducing the cost of internet bandwidth, while improving routing and latency.
This strategic mix—accepting higher power costs but leveraging lower bandwidth rates and manageable space costs—allows us to provide a more balanced colocation price to our customers.
Flexibility in Power Billing: Half-Amp Increments
Another way Metanet helps customers save money is by offering a more flexible power billing model. In Manhattan, the very high cost of utilities and the power constraints at data center telco hotels make power allocation a critical issue. Many providers in the NYC area charge on a per-Amp basis, which can quickly add up when colocation servers draw fractional power loads.
For instance, some facilities charge around $100 per 120V Amp. If a single 1U or 2U server consumes 1.5 Amps, many providers will round up and bill for 2 Amps. Over time, that extra half-Amp adds significant costs to a customer’s operating expenses.
At Metanet, we bill in half-Amp increments instead of full Amps (something unique to the industry). This means if your server draws 1.5 Amps, you’ll be billed for exactly 1.5 Amps—not rounded up to 2. Over many years, this can save customers thousands of dollars in operating expenses. It’s part of our philosophy of being a flexible data center provider that does what others don’t. This customer-first approach is one of our core strengths and sets us apart in the competitive NYC colocation price market, or nationally for that matter.
Multihoming and Carrier Mix: The Redundancy Factor
Another element influencing colocation price is the number and quality of carriers a provider uses. A colocation or hosting provider that is multihomed—connected to multiple upstream providers—offers greater redundancy, resilience, and improved routing. However, this comes at a cost. Each additional carrier link represents an added expense, and premium carriers charge more for their services.
For example:
- A provider connected to four or five major upstream carriers can route traffic more efficiently and ensure greater uptime reliability. However, maintaining those connections means higher operational costs.
- Some carriers charge a premium for international reach or specialized routing. While this raises costs, it also ensures better latency and performance for global customers.
This is why not all colocation price models are created equal. A provider offering a carefully blended BGP4 mix of carriers can deliver superior connectivity, but the costs of maintaining those relationships inevitably influence the final colocation price.
Metanet’s Balanced Carrier Strategy
At Metanet, we’ve designed our carrier blend with a deliberate balance. Our IPv4 BGP blend combines premium domestic providers with specialized backbone carriers. The premium carriers ensure robust domestic performance and low latency within the U.S., while the specialized providers give us reach into international markets at competitive rates. This hybrid approach enables us to:
- Maintain redundancy through multiple carriers.
- Minimize latency across domestic and international routes.
- Keep colocation price efficient for customers by avoiding an overreliance on exclusively high-cost premium providers.
The result is a carefully engineered mix that translates into better connectivity, reliability, and pricing for our customers. Instead of simply passing along the cost of expensive premium carriers, we’ve optimized our blend to preserve performance while maintaining competitive colocation price.
The Three-Way Balance of Colocation Price
Ultimately, colocation price comes down to a careful balance of three major factors:
- Electric Power: Typically the largest cost driver. Rates vary dramatically by region, making this the cornerstone of most colocation price models.
- Space: Physical rack space becomes more valuable in markets where power is cheaper. Data center real estate costs also vary depending on location within a city or region.
- Bandwidth: Proximity to internet backbones, carrier gateway locations, and multihoming strategies all affect both performance and price.
Every provider must navigate these three elements in their own way, and every region presents different challenges and opportunities. For customers, understanding how these factors interact can help explain why colocation price and rates differ so widely across markets and why the lowest sticker price may not deliver the best performance.
Colocation price is never a one-size-fits-all proposition
Electricity rates, space, bandwidth, and gateway access all influence the true cost of hosting infrastructure. Metanet’s strategic location, half-Amp billing, dual presence in key Manhattan buildings, and carefully blended carrier mix allow us to deliver high-performance, cost-efficient colocation.
For businesses evaluating colocation options, it’s critical to understand not just the advertised price but the underlying factors. Power, space, bandwidth, and strategic connectivity together define the real value of colocation services.
