The choices may be better stated as co-location vs. dedicated vs. managed dedicated (beware of the term managed).
Co-location is where you supply all or most (usually all) of the equipment necessary to host your operation. You place that equipment (via direct shipping from manufacturer, shipping from you, or in-person) in an area that you rent from the co-location facility.
The co-location facility typically supplies you with three P's --- ping, power, and pipe. Ping (not to be confused with the ping network utility) means they supply with with connectivity to their network. Power means just that -- they power your boxes with electricity. Pipe means how much / fast a connection you rent from them (please note it can also mean the size of their network pipe and from whom -- such as Cable & Wireless with BGP4 and UUNet).
In most co-location situations, you are completely responsible for maintaining your own equipment; and, for insuring your equipment.
The data center providing co-location manages their network; you manage your equipment.
Co-location terminology (not meant to be complete)
Burstable - Is your bandwidth (data traffic) per second or month fixed (capped) or can you burst (go higher)?
Burstable will allow you to go higher (have more than what you've contracted to purchase) which means no lag of network speed. Non-burstable generally means you connection is slower during the time where bursting would be nice to have available.
MBps (Megabytes per second) and KBps (Kilobytes per second) - a measure of bandwidth (data traffic) per second.
Ping, Power, and Pipe (the three P's) - often used to describe the meat and potatoes of co- location. Ping means network connectivity to the Internet. Power means electricity to the devices. Pipe means how much bandwidth (data traffic) is being provided.
Rack - A cabinet (can be open or locked; opened means anything from no door to just no key) which holds rack mountable servers. A standard rack can hold 42 rack units.
Rack Unit (RU) - A unit of rack space measured as being 1.75 inches high.
Hidden costs of co-location
If you remember that the equipment you are placing at the co-location facility is YOUR equipment, then most of the hidden costs should make sense to you.
* You are responsible for maintaining your equipment.
This not only means the software on the machine, but it also means the hardware.
So if the hard drive fails, do not expect the co- location provider to have a spare in stock unless you've made arrangements before the failure took place.
*You are responsible for insuring your equipment.
Generally the insurance runs 1% on the dollar; so don't let the statement frighten you.
* If you ask for burstable bandwidth, be prepared to pay hefty overage charges if you do burst.
Let's say you are paying approximately $2.00 to $2.50 per GB of data traffic; and, that you've contracted for 64 KBps (which is 20 GB per month).
Now you burst to 25 GB one month; then you can expect to pay as high as $5 (sometimes more) per GB of overage.
* Whether you decide to physically visit the data center to make repairs or updates, or you have the data center staff do the work for you, expect to pay the data center.
That's correct, even if you are doing the work, you may have to pay the data center a fee for their staff to watch you for security reasons as it relates to the data center itself and other customers housed in the data center.
Co-location, when done correctly, can save you thousands to hundreds of thousands of dollars per year in hosting fees.
How is this possible?
Well when you contract for a dedicated server, you are basically doing the equivalent of renting an apartment instead of buying a house.
Under normal circumstances when you rent an apartment, the apartment is never paid off. You keep making the same monthly payment (or more over time), and there is never a time when the payments stop.
The same is true for dedicated servers. While a part of your monthly fee goes to paying off the equipment you are using, you will never own the equipment.
And because you are not the owner of the equipment, and the provider is renting you the equipment as part of the over all services, your payments will never go down.
Depending on the type of hardware you need for your solution, the hardware portion you are paying to the provider to rent their hardware can range anywhere from a hundred and change per month to several thousand per month. That adds up over time.
Dedicated servers is where the data center purchases all of the equipment you need for your solution, and then rents / contracts that equipment to you.
It is important to note that you will never own the equipment in a dedicated and managed dedicated situation. This is like renting an apartment; you never own the apartment.
Typically the data center providing dedicated servers is responsible for managing their network and the physical hardware they are providing for your use; you are typically responsible for providing the day-to-day management of your equipment in terms of system / server administration.
Where as in co-location most bandwidth is sold based on speed per second, dedicated and managed dedicated solutions typically sell bandwidth in quanity per month.
This allows for more fixed costs even when overages occur.
Typically dedicated servers make the most sense when you don't have the ability to manage the physical equipment or if ownership of the equipment is not necessary.
Given that the typical rule for Mean Time Before Failure (MTBF) results in servers being replaced every three to five years, owning equipment puts the burden of replacing and upgrading in your hands.
Managed dedicated servers can have many meanings. In the past it meant that the data center took care of everything for you with any additional fees period (or if there were additional fees, they would be clearly defined, a rarity, etc.).
Today, a managed dedicated server can mean you have a browser-based control panel where YOU handle the management.
Yes, that's a complete joke.... they call it managed because YOU do the management <sigh>.
And there are companies who provide no more than dedicated servers (they manage the network and the physical hardware) who call themselves managed; and, you get nothing more other than the "word."
It is like getting a promotion and new title without any change of compensation.
So in the realm of managed hosting, you must be completely on guard; you must ask a ton of questions.
Great explanation dynamicnet! I just want to add that most dedicated providers offer cheap solutions: IDE drives and no RAID. The prices are attractive though: I saw providers charging $100 per month for dedicated and $90 per month for colocation with the same bandwith! But if you find a good hardware it will cost you a lot!