There's a big difference between the cost to install and operate and the cost to scale. If your hardware utilization characteristics are easy to calibrate for and capacity requirements are predictably steady, you can certainly optimize your own racks at a colo. However, hardware changes quickly, businesses typically change even quicker and capacity requirements are often highly variable. Unless the above conditions are met, it's insanely risky to go into a contract for a colo. Let us know how that one year investment recovery works out for you.