Gateways should be installed in locations that minimize the distance between the Power BI service tenant, the gateway server, and the on-premises data source. Reduced physical distance between these three points results in less network latency and thus improved query performance. Minimizing this latency is especially important when the gateway is used to support interactive report queries from Power BI to on-premises DirectQuery sources and Live connections to on-premises SSAS models.
For example, via this free tool, it can quickly be determined that the average latency to the West US region is 100 ms while the East US region is only 37 ms. The lower latency of the East US region is due to the physical proximity of this region to the source IP location (near Boston, MA).
For example, if the Power BI tenant for your organization is located in the North Central US region in Microsoft Azure and your on-premises data source (for example, Oracle) is also located in the upper Midwest region of the United States, then the gateway should be installed on a server near or between these two locations.
The location of a Power BI tenant can be found by clicking the About Power BI menu item via the question mark icon in the top-right corner of the Power BI service:
In this example, the Power BI content for the organization is being stored in the North Central US (Illinois) Azure region. Therefore, the gateway should be installed on a location that minimizes the distance between Illinois and the location of the data source. One example of this would be to install the gateway on the same subnet of the production data source server. It's not necessary, or recommended, to install the gateway on the same server as the production data source.