What is colocation when used in the aws context?
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The way we prefer to understand this is by the meaning of the prefix "co" which among many words, also means "jointly".
For instance when mentioned in the AWS Directconnect context, your company are joining with a third party, in AWS terms, called Amazon Partner Network (APN) company, to connect to AWS's datacenter (region datacenter)
The end to end connection is jointly held by your company and the APN (colocation partner) to the Amazon datacenter.
Colocation (colo) partners also provide other services.
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