I still have two servers that I colocate at a local datacenter. The upside is that it's my hardware and it's at the spec I needed. The downside however is that it's an semi-open cabinet that others have access to also (not to the machine, but the same rack. Mine are in a locked shelf, but wires are exposed etc).
There's still a need for colocation - but I haven't seen a big push for it lately. Most just rent the machines direct from the centers.
I guess the definition of colocate needs to be provided;
Colocation is when a client is provided space, power and data connection, but the client provides their own equipment and has full control over the hardware and software.
Not many independent hosting companies are doing this.
Most people are leasing equipment, or renting dedicated servers in that the datacenter provides the connection, hardware and maintenance. They may also provide services such as rebooting, formatting and ISO backups.
So to say that "we obviously colocate" would be incorrect, based on the common use and definition of the term "colocation".
I would say less than half of our customers are web hosts. A lot of companies use colocation as a place to put servers for disaster recovery or as a more secure location for their servers then in an office building.
We even have media companies whose primary use for their colocation is our faster backbone connections so they can upload media more quickly.
I lease a cabinet in a data center and provide my own hardware. Definitely cheaper to provide my own hardware than leasing it from the data center. And when I say I provide my own hardware I mean I buy the parts and build my own servers. I don't buy prebuilt servers.
So I am still trying to wrap my head around what is meant by colocation. I always have thought colocation is when the data center provided space and power to the hosting company. I have been in a couple of different data centers and that is what they called it.