Data Center costs and pricing compared
Let’s talk about something that affects every website, app, and online service but rarely gets attention outside of tech circles — the cost of running a data center. People often imagine the cloud as this magical place where data just floats around, but the truth is the cloud is made up of real buildings packed with servers. These data centers use electricity, require maintenance, and pay people to keep everything running.
What I have learned over the years, visiting and working with different facilities, is that data center costs can change dramatically depending on where they are located. Two buildings with the same equipment can have totally different monthly bills simply because one sits near a cheap power source or an Internet backbone while the other sits in a high-rent city.
In this article, I’ll walk you through what I’ve seen firsthand — how geography, power, labor, and connectivity all combine to shape data center pricing.
The Power of Proximity to the Internet Backbone
When you are deciding where to host your servers or rent colocation space, one of the biggest factors is proximity to the Internet backbone. The backbone is essentially the high-capacity network that connects Internet exchanges across continents. Data centers located directly on these routes have a serious advantage because they can plug into major carriers and peer directly with other networks.
This is what’s called peering, and it’s a huge deal for cost control. Peering allows two networks to exchange traffic directly without paying a third party for transit. That means lower latency and lower costs per megabit.
I once toured a data center in Dallas that sat right on a backbone connection. Their IP transit rates were some of the lowest I had ever seen because they had direct relationships with multiple carriers. That facility could also scale quickly because it was already part of a major Internet exchange. Adding capacity didn’t require new infrastructure — it was just a matter of connecting to another fiber pair or switching port.
Compare that to a facility far from the backbone, where every bit of traffic has to be hauled through another carrier to reach the wider Internet. The cost difference per megabit can easily double or triple.
Why Power Prices Make or Break Data Centers
The second major factor that affects data center cost is power. Servers eat electricity, and the cooling systems that keep them from overheating use almost as much. So, the price per kilowatt hour is critical.
I have seen places where the electricity cost can make or break a business. Take Buffalo, New York for example. Facilities there tap into Niagara Falls hydroelectric power, which is abundant and relatively cheap. That allows operators to offer competitive colocation rates while still maintaining good margins.
But in New York City, it’s the opposite story. Power is expensive, the grid is old, and getting additional electrical capacity is a logistical nightmare. The infrastructure in Manhattan was never designed for the kind of power draw that modern data centers require. Even if you have the budget, getting the necessary permits and running new lines through old, often landmarked buildings takes time and patience.
I remember working on a project there where just getting approval for a new conduit run took weeks. The electricians were unionized, the work was high quality, but the hourly rates were some of the highest in the country. You could feel the cost difference in every invoice.
The Cost of Labor and Staffing in Different Cities
Labor costs are another huge part of the equation. Data centers need technicians, engineers, and electricians around the clock. In places like Manhattan, wages are sky-high because of the cost of living and union rules. Most of the people working on those systems are union employees, which adds predictability but also cost.
In contrast, when I worked with teams in Arizona, it was a completely different picture. There, the cost of living is lower, so staffing a 24-hour operations team costs significantly less. You can find experienced network engineers, HVAC technicians, and electricians for a fraction of New York’s rates.
This difference carries over into what some people call digital real estate — basically, the cost of renting rack space or a colocation cabinet. The same 42U cabinet that might cost $2,000 a month in Manhattan might cost $400 in Phoenix or Utah. Multiply that across hundreds or thousands of racks, and you can see why companies are increasingly moving away from expensive urban hubs.
When Cheap Power Isn’t Enough
Virginia is an interesting example of how fast conditions can change. A few years ago, northern Virginia was considered one of the best regions in the world for building data centers. Land was affordable, power was cheap, and it sat right on major Internet routes.
Fast forward to today, and that area is packed. The power grid is reaching its limits, available land is scarce, and local utilities are struggling to keep up with the demand. Prices are climbing, and companies are being forced to look elsewhere — sometimes just a few hours outside the main corridor — to find affordable power and space.
A colleague told me recently that even after they secure land, they might wait years for the power utility to deliver the necessary capacity. That kind of delay can completely throw off the economics of a project. It’s one reason data center developers are now scouting new territories instead of crowding into the same traditional hubs.
How Real Estate and Space Constraints Add Up
Real estate itself plays a massive role in overall cost. Manhattan is the perfect case study. Even if you find a building zoned for heavy electrical use, the rent is astronomical. Many of the buildings suitable for data centers are older and protected by landmark laws, which means even basic construction changes require special approval.
Bringing in fiber or expanding cooling systems can become a logistical maze. You often have to negotiate with multiple landlords, coordinate with city agencies, and hire specific unionized contractors. Each step adds another layer of cost and delay.
Meanwhile, in a place like Fresno, California, the situation couldn’t be more different. There’s plenty of space, fewer bureaucratic hurdles, and a lower cost of living. Companies like Hurricane Electric, which operates as a backbone provider, offer extremely competitive colocation rates in Fresno. They’re able to do that because they control both the network services and the facility, cutting out middlemen and leveraging cheaper regional expenses.
The Unique Advantage of Backbone Providers
When a data center is operated by a backbone provider, the economics change entirely. These facilities aren’t just selling space and power — they are part of the network infrastructure itself. That means they can route traffic efficiently, control bandwidth costs, and offer customers better rates for Internet access.
If your company colocates inside one of these backbone data centers, you benefit from their peering relationships and network reach. Instead of sending your data through several third-party carriers, your traffic goes directly to its destination through private peering. This lowers latency and saves money on transit costs.
It’s a clever model, and it’s one reason some of the lowest colocation prices in the country can be found in areas where backbone providers operate directly, like Fresno or San Jose.
The Distance vs. Latency Tradeoff
Saving money is great, but distance from end users introduces another factor — latency. Every extra mile adds milliseconds to response times, and for some businesses, that’s unacceptable.
This is why a lot of companies take a hybrid approach. They’ll put core infrastructure in a lower-cost region and use edge data centers near big cities to handle time-sensitive workloads. That balance keeps costs manageable without sacrificing performance.
I worked on a setup where our primary servers were in the Midwest, while smaller edge nodes were deployed in New York and Los Angeles. It worked beautifully. The Midwest facility had cheap power and rent, while the coastal locations handled user requests that needed quick response times.
This kind of architecture is becoming the norm as cloud providers and CDN operators look for ways to cut expenses while keeping speeds high.
Cooling Costs and Climate Considerations
Another underrated factor in data center operations is climate. Cooling systems can account for nearly half of a facility’s power consumption, so weather matters.
In cooler, drier climates like Oregon or Utah, data centers can use outside air to cool their equipment for much of the year, drastically reducing costs. This technique, often called “free cooling,” lets operators save millions on electricity.
But if you build in a hot, humid place, like Florida or Singapore, your air conditioning systems have to run nonstop. That not only drives up electricity bills but also increases maintenance needs.
That’s one reason why more companies are building facilities in northern regions or near sources of renewable energy. Some even experiment with underwater data centers, taking advantage of natural cooling from the surrounding water.
Local Regulations and Incentives
Not all regions treat data centers equally. Some states roll out the red carpet with tax incentives and low property rates, while others pile on paperwork and environmental requirements.
Arizona, for example, offers generous tax exemptions on data center equipment purchases, making it one of the most attractive states for new builds. In contrast, building in California often means stricter environmental reviews and longer permitting timelines.
Even insurance costs vary. If your facility is in an earthquake-prone region or near flood zones, your premiums will be much higher. All of this feeds into the final cost of operating a data center.
Watching the Industry Expand Beyond Traditional Hubs
Over the past decade, I’ve watched the data center industry slowly spread out from traditional hubs like Silicon Valley and northern Virginia. Those regions are still important, but they’re running out of affordable land and power.
Now, places like Reno, Tulsa, and even Des Moines are popping up on the map. These cities offer cheap electricity, lots of land, and increasingly good network connectivity. Fiber backbones are expanding, and new Internet exchanges are being built in smaller markets.
That means companies no longer have to choose between cheap power and good connectivity — they can have both if they plan strategically. This shift is creating a more balanced and resilient Internet infrastructure.
The Human Side of Data Center Economics
Behind every rack of servers and blinking light are real people — engineers, electricians, and security teams who keep the digital world running. The cost of labor, the availability of skilled technicians, and even the quality of local contractors all influence where companies build.
In places with high wages and limited space, like Manhattan, every small change can take weeks and cost a fortune. In other areas, like Arizona or Utah, work can move much faster. The difference isn’t just in dollars — it’s in flexibility and time to market.
That human element often gets overlooked in discussions about technology, but it’s one of the biggest factors in long-term success.
What It All Means
Every data center tells a story about its location. The cost of Internet access, electricity, real estate, and labor all blend together to create its unique financial profile. A facility on the Internet backbone might have unbeatable network performance, but pay more for power and staffing. Another facility in a rural area might enjoy cheap land and electricity, but face higher transit costs or longer response times.
In my experience, the smartest operators are the ones who find balance. They mix strategic locations, hybrid infrastructures, and smart partnerships with backbone providers to get the best of all worlds.
When you think about it, the Internet’s physical layer is shaped by all these tradeoffs. Every click, every stream, every download is powered by a chain of decisions about geography, cost, and design.
The next time you watch a video or upload a file, think about the journey your data takes — from a data center near a waterfall in Buffalo to a peering hub in Dallas, and maybe through a low-cost facility in Fresno before reaching your screen.
For me, that’s what makes working with data centers so fascinating. Each one is a mix of engineering, economics, and geography, all working quietly in the background to keep the world online.
