Cloud vs Colocation vs Managed Hosting for Startups

With all the talk about cloud computing it’s easy to forget that there are two other common types of hosting for startups: colocation and managed. In a cloud computing environment the servers are virtualized such that a physical machine is often shared by one or more customers and it’s easy to scale up or down as needed (shared hosting and VPS setups fall under cloud computing). Colocation and managed hosting are similar in that the physical machines are dedicated to the customer, but differ in who’s responsible for the actual hardware costs and maintenance, and thus the monthly fee. Colocation is a bring-your-own-hardware approach whereas managed hosting is renting the hardware from the provider.

Here’s how I think about cloud, colocation, and managed hosting in the context of startups:


  • Good for starting out when server needs are unknown and it’s easy to scale up and down quickly
  • Best for environments that have differing scale needs on a regular basis (e.g. imagine you normally need 20 servers but for a few hours each night you need 100 servers to crunch data)
  • Great for an on-demand infrastructure backup (e.g. replicate the database data but don’t turn on all the other necessary servers unless another facility goes down)
  • Higher latency on average


  • Best for the core infrastructure in a 3 – 25 server environment where a relatively constant amount of horsepower is needed (most startups operate this way) and capital is not as plentiful (renting a server is more capital efficient than buying it when getting started)
  • Cheaper than the cloud on a per-server basis but more expensive than colocation assuming a low cost of capital


  • Best for maturing startups that can afford acquiring servers and personnel to manage them
  • Requires more effort and management compared to cloud and managed
  • Maximum flexibility regarding the hardware used (e.g. fancy servers and storage configurations)

In general, I recommend startups start with the cloud using an environment like Amazon Web Services and then move on to managed hosting followed by colocation as the business progresses.

What else? What are your thoughts on cloud vs colocation vs managed hosting for startups?

4 thoughts on “Cloud vs Colocation vs Managed Hosting for Startups

  1. David, what do you think about Platform-as-a-Service type tools like Heroku that are built on top of AWS, and promise less “ops time” but cost more.

  2. Its also important to distinguish between tech startups and others. If a startup does not have good IT expertise within it then managed is a far better bet than AWS which requires in depth knowledge.of how infrastructure works and frequently websites/applications etc need to be designed for AWS from the outset to work around some of the resilience issues.

  3. I think you are spot here. We followed the progression from shared (cloud) to colo and finally into managed, We found that managed services for a 3-5 server environment are about 50% higher than leasing your own servers and putting them in a colo, the freedom to focus on other parts of your business are well worth the cost.

  4. I am in agreement with this assessment. Scalability is very easy, but predicting the scale is very hard in a startup. Cloud computing helps move the Capital Expenditures of buying servers and running a mini datacenter to Operational Expenditures of paying a cloud provider a regular sum. This is ideal for startups as most cannot afford to invest a lot in capital and would look to leverage even cent of capital to build their product. Using cloud hosting would let your startup stay lean and mean for a longer period, as you don’t need to keep your server in-house or maintain a large IT team. Full disclosure: I work for a cloud hosting provider.

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