The physical environment is owned and operated by the service provider. You dont have a staff of hardware engineers and you dont have a computer room to manage or pay for. You dont have to worry about upgrading your machines or the environment in which they reside. They will be in a robust physical facility with multiple sources of communication and power.
You dont really care about the equipment, because it belongs to someone else and its their problem to worry about keeping it running. You are paying for a certain level of service as defined in the service level agreement (SLA). As long as the service levels are met you really dont care how it gets done. This is more expensive than other models, but you have to weigh that cost against the resources that you would be dedicating to the acquisition, housing, management and maintenance of your systems.
Typically youll pay for:
A defined number of servers
Connectivity from your office to the servers
Reliable power and communications infrastructure
Horizontal software applications, e. g. Operating systems, Database engine
Regular updates to the software and hardware
24x7 monitoring of systems with alerts to let you know if theres something amiss.
Regular reports on service levels
Servers - The servers may be physical or virtual servers. More and more service providers are using virtual server environments. This trend will likely continue and you neednt be concerned with the physical arrangement of the equipment. If you have a small number of applications you may only need one or two physical servers running multiple virtual environments.
Connectivity - As in the co-location model, connectivity to your office network and to the Internet is whats needed to make sure that you can access the servers that are doing the work. There are myriad communication speeds ranging from the equivalent of DSL speeds up to the highest speeds available. You will have to work with your service provider to decide how much data you are going to move between your office and the servers.
This will determine how much bandwidth you need. If you have heavy traffic to a server based application then youll want to have more data bandwidth available on that side of the equation. If you have a lot of data coming in an ecommerce application, then youll want more bandwidth to accommodate that. If youre just doing normal office Internet surfing youll probably need less bandwidth.
You should purchase the amount of bandwidth that you use on an average basis. There will be a surcharge for using more than that, but that can be mitigated by making sure that the surcharge is based on a 95% measurement of sustained usage. If you push a lot of data to your servers occasionally, that wont cost anything extra.
Horizontal Software - Horizontal software is the software that is needed across all application platforms and systems. This includes the operating system with on-going deployment of patches and updates to current version as released from vendor. If you are using a database like Oracle or MS-SQL, the service provider should have a certified expert on staff to manage and maintain the database engine. You shouldnt expect to have support for any applications that run using that database.