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Close up of data center network technician holding smartphone with blank screen while connecting cables in outsourced server cabinet. SeventyFour Images / Alamy Stock Photo

Data Center Outsourcing: A Comprehensive Guide to DCO

Looking for a data center outsourcing provider? In this guide, we cover everything from cost and budget to security and compliance.

An increasing number of organizations today are opting to outsource at least some aspects of data center operations. Why? Because data center outsourcing (DCO) helps organizations reduce costs and free up resources to dedicate to other business priorities by shifting data center infrastructure and responsibilities to a service provider.

According to market research firm Data Bridge, the data center outsourcing market will reach an estimated value of about $320 billion by 2028. Increasing demand for IaaS (Infrastructure-as-a-Service) is one factor driving DCO market growth.

Whether you’re new to DCO and curious to learn more or familiar with DCO and ready to get started today, this article covers everything you need to know. We explore the different DCO types and models, weigh the benefits and challenges, share how to evaluate a DCO service provider, and outline 10 steps to get started with DCO.

What is Data Center Outsourcing?

DCO, or data center outsourcing, is the practice of delegating all or some of the day-to-day management and operation of data centers to a third-party service provider. The outsourcing partnership can be annual or multi-year, occur on- or off-premises, and include services like computing, security, infrastructure maintenance, disaster recover, network essentials, and many other professional services, depending on the specific needs of an organization.

Types of Data Center Outsourcing

There are three main types of data center outsourcing by geographic location: Onshoring, Nearshoring, and Offshoring.


Onshoring, sometimes known as domestic outsourcing, refers to contracting a data center service provider located within the same country as the organization. Onshoring is an attractive option for organizations that prioritize factors such as geographic proximity, working in the same time zone, local regulations, and cultural and language compatibility. Drawbacks to this option include limitations in skillsets and higher costs.


Nearshoring refers to contracting a data center service provider located in a nearby country or region from the organization. While not in the organization’s home country, the service provider is close enough geographically to help the organization balance cost savings with benefits such as similar time zones, ease of travel, and cultural and language similarities.


Offshoring refers to contracting a data center service provider located in a distant country or on a different continent than the organization. This option may provide significant cost savings through lower labor costs but can introduce challenges like considerable time zone differences, cultural or language barriers, and difficulty in overseeing or verifying compliance and security practices.

Data Center Outsourcing Models

Four of the main DCO models are colocation, managed services, cloud services and the hybrid model. Which is right for you? We detail each of them below and list some of the pros and cons of each model.


The colocation DCO model occurs when an organization physically deploys IT equipment in data centers owned and managed by a third-party provider. The organization retains control over its servers, storage, and networking equipment, while the service provider offers the physical infrastructure, power, cooling, and connectivity.

Organizations may choose colocation because of several benefits, like a lower cost of entry, scalability, less maintenance, and location flexibility. Drawbacks to this option include a loss of complete control, less flexibility for physical access, and migration challenges.

Managed Services / Data Center as a Service

The managed services DCO model, sometimes known as Data Center as a Service (DCaaS), occurs when an organization leases data center infrastructure from a service provider. This provider will also assume responsibility for day-to-day operations. These services may include hardware procurement, installation, monitoring, maintenance, and support, ensuring the availability, performance, and security of the data center.

The managed services model is an attractive option for organizations who want to leverage the service provider’s expertise to free up resources so they can focus on their core business activities.

Cloud Services

The cloud services DCO model involves outsourcing resources and infrastructure to a cloud services provider like Amazon Web Services (AWS), Google Cloud, or Microsoft Azure. This option does not require maintaining any physical servers, as organizations can access computing resources, storage, and applications on the web.

Organizations may find the cloud services option beneficial because of its scalability, flexibility, and cost-efficiency – organizations only pay for the resources they use.

Hybrid Model

The hybrid DCO model combines multiple models to meet an organization’s specific needs. This could include in-house, on-premises infrastructure management for core workloads and a colocation service provider for non-core activities.

The hybrid model is best suited for organizations searching for flexibility to meet their data center needs.

What Are the Benefits of Data Center Outsourcing?

  • Cost savings for operational expenses, like space, power, cooling, and equipment and labor costs, through economies of scale and shared resources
  • Access to state-of-the-art infrastructure without having to continuously fix or upgrade hardware like servers, networking equipment, and storage equipment
  • Ability to scale up or down to meet the changing needs of an organization 
  • Reliability for critical needs like disaster recovery and reduced downtime
  • Lower barrier to entry compared to designing and constructing their data centers on-premise
  • Access to skill sets that may be difficult to find in the organization’s country or region
  • Freeing up resources from data center operations management to core business activities and other strategic initiatives

What Are the Challenges of Data Center Outsourcing?

  • Lack of direct control over data center infrastructure and operations
  • Security concerns that may arise from sharing equipment and labor resources with other organizations. This includes physical and cyber security
  • Compatibility of working styles, business and IT goals, and cultural norms
  • Communication challenges due to language barriers or time zone differences
  • Travel costs to and from service providers

What to Consider When You Outsource Your Data Center?

There are several factors to consider when deciding whether to outsource any of your data center management needs.

  1. Reputation: Does the DCO service provider have a proven track record of reliability and customer satisfaction?
  2. Scalability: Can the service provider scale their services up or down to accommodate your organization’s evolving needs?
  3. Security: Does the service provider have robust security measures like physical security, network security, compliance with relevant regulations, and data backup and recovery processes?
  4. Location: Is the service provider geographically located in an area with benefits like time zone alignment, proximity, and political stability?
  5. Power and Cooling: Does the service provider have redundancies to provide reliable power and cooling to the data center?
  6. Service Level Agreements (SLAs): Can the service provider demonstrate clear and comprehensive SLAs like incident response and resolution times, performance metrics, uptime guarantees, security measures, and escalation procedures?
  7. Cost: Does the service provider’s cost structure and pricing model fit within your budgetary and infrastructure needs?
  8. Offboarding: Thinking ahead to the future, is there a robust plan to offboard the service provider while also maintaining business continuity and retrieving data and systems?

How to Get Started With Data Center Outsourcing?

After you’ve decided to move forward with data center outsourcing, then what? We break down 10 steps to successful start your data center outsourcing journey.

  1. Define your data center goals like reducing costs or improving operational efficiency.
  2. Assess your data center requirements and needs like scalability, storage, and performance.
  3. Identify potential service providers that meet your needs like a preferred location, experience, reputation, expertise, cost, and services.
  4. Conduct a feasibility study to determine if the service provider aligns with your organization’s overall IT strategy and business objectives.
  5. Request proposals to evaluate the service providers based on contractual terms, pricing, technical capabilities, and other requirements.
  6. Conduct due diligence to verify references, compliance records, SLAs, and certifications.
  7. Conduct site visits to assess and inspect infrastructure, security measures, and operational processes.
  8. Evaluate and choose a service provider with your legal and procurement teams.
  9. Create and execute a migration plan with clear timelines and responsibilities in collaboration with the service provider to ensure a seamless transition.
  10. Monitor the outsourced data center through established communication channels, ongoing assessments, and regular audits.


How does cloud computing fit into data center outsourcing?

Cloud computing can be considered a type of DCO. Instead of using physical data center infrastructure for their computing needs, organizations can access computing resources on the web through cloud service providers.

How does pricing for data center outsourcing services work?

Pricing can come in the form of fixed, usage-based, or tiered pricing and depend on factors like contract length, services needed, support provided, and ancillary costs like setup, migration, data transfer, hardware, or software licensing fees.

What are the compliance and security requirements for data center outsourcing?

Compliance and security requirements include data privacy, security controls, industry-specific regulations like HIPAA or PCI, compliance certifications like SOC 2 (Service Organization Controls) or FedRAMP (for US government agencies), audits, and business continuity and disaster recovery.

What kind of data center infrastructure do I need for outsourcing?

Data center infrastructure needs may include storage infrastructure, computing resources, power and cooling, physical security, and network infrastructure.

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