There are numerous differences between the colocation hosting services and dedicated hosting services. The basic difference is that a colocation service consist of locating your servers or IT infrastructure to the the third party data center, whereas dedicated servers are already with the data centers which is being leased or purchased by the client.
Dedicated server hosting is one of the most popular and most demanded form of web hosting. People are more skeptical about the colocation services. Dedicated is mostly chosen by customers that have good level of data and possess high traffic within the websites. Basically, Colocation services add some hardware from the customer as well as hardware is scheduled within a data center which is made available from the Colocation service agency.
There is one difference which can be said as ownership difference, in dedicated web server the ownership or the control is with the client and he gets the unshared access, that is monitor by the hosting provider and collocated server is owned by the user and placed the server hardware in house of data center in rental space along with the servers of some other companies and individuals.
In colocation servers basically the user purchases his own hardware and softwares licenses and place them in a data center. In this type of hosting, customers have the flexibility to manage, secure and maintain their servers while the data center provides the server space, security, redundancy, controlled air temperature, UPS and managed server solutions. Managed dedicated servers remove the burden of technical maintenance to a company by providing system administration within the service.
Dedicated servers are generally managed and upgraded by the hosting providers itself, but in colocation servers you can not expect to upgrade your servers by the hosting provider, they will just physically secure your servers in their infrastructure. As far as the costing is concerned the dedicated servers are not a costlier affair as compared to the colocation web servers as in dedicated servers you get fully managed services by the clients and in colocation servers you only get the physical security.
A dedicated server hosting services provides complete freedom to the users as they can install any software and can have full root access to the server,whereas in colocation hosting the client has to rely on the hosting providers for the amendments.
In a way we can say that both the hosting services are appropriate at their places, it all depends on the requirements and the applications which a user want to opt for.