Pricing of VPS and dedicated servers scales with RAM but is entirely unrelated to the cost of RAM chips. Hosting companies use RAM as a proxy for their real costs -- power/cooling, hardware wear/replacement, bandwidth and support. There's a strong correlation between the amount of RAM a customer purchases and the hardware utilization of that customer, that's why the industry has converged on that component as the main factor in pricing.
Thinking that these companies charge $25/gb/mo for RAM has anything to do with the cost of physical RAM (which would be paid off in the first month) is a mistake.
I'm frustrated as anyone with the difficulty of finding affordable high-RAM instances/servers without colocating, but complaining to the host that their pricing should change because of the price of physical RAM won't get us anywhere. That's not how they set the prices.
Consider a double extra large high memory ec2 instance - it costs you $6093/year for 4 cores and 34gb ram.
On softlayer, a dedicated quad core xeon processor with 32gb ram costs about $12,600/year. I imagine the CPU speed and disk IO on softlayer is better than the EC2 instance, but for many workloads (read: memcached/redis/giant in-memory calculations) that doesn't matter so much.
When targeting an environment where CPU usage is cheaper than a 30GB hash table, I'll choose the CPU usage. It's very simple. I am not actually commenting on anyone's empirical observations, theoretical, imagined, or otherwise.
When systems can support more memory (and adequate cpu to utilize it) per watt, then pricing should decrease.
I believe people feel more in control of the buy process if they can make autonomous decisions and pay right away. No commercial chat, no nothing.
Whether the service is overpriced or underpowered this is not a problem until the buyer does not recognize it as such.
Only when the buyer gets burnt hard, only than he starts to consider other points like: really ad-hoc configurations, support (if they are not enough skilled on sysadmin tasks), the legislation under which the data resides (being italian and hosting on AWS I need to take this into account too), and also price.
2) Scaling is someone else's problem. For static objects, S3 can handle traffic spikes orders of magnitude beyond what would bring your Linode to its knees (and there's their CDN option on top of that). Spinning up a new server on AWS (or a hundred servers, or a thousand) to handle a sudden burst of traffic takes a minute or less, and you can turn them off in an hour if the traffic dies down, paying only for that hour. Spinning up new servers on Linode may or may not be possible at any given time, and you have to pay for them for a whole month.
Running your own or VPS is cheaper for predictable, steady loads, AWS can be much cheaper and more reliable for unpredictable loads.
It's worth having AWS in your toolkit in case you get that front-page post on HN, TechCrunch, Slashdot....
Handling your base load with AWS is ludicrously expensive compared to the alternatives.
And the upside of having your system set up to be able to make use of a cloud provider with instance instance spinup in your toolkit is that it increases the cost gap:
Whereas if you go dedicated only, you need to be able to handle reasonable spikes on what you pay for on an ongoing basis, if you can spin up AWS or other cloud instances as needed, you can push your dedicated boxes far closer to max utilization than what you otherwise would.
Yes but the cost is tiny compared to paying some engineers to do all the hard work replicating what AWS offers on top of some alternative like Linode or whatever.
If your hosting costs are huge part of your costs, you're doing it wrong (or are very very successful, Google/Facebook scale).
However where it (and Rackspace + others) shine is using the API to spin up instances for jobs in scripts, or have your monitoring automatically spin up additional instances to scale up when load increases.
As to RackSpace I don't trust any tech company who has a 7:1 sales rep to engineer ratio. They are overpriced in all of their services, especially their managed dedicated servers (seriously, why does it take a week to have a server installed? it takes a week because they literally have a guy go out and image servers by hand. do you really want to wage your company's future on that sort of incompetence? I don't)
I've been using them for a couple of years on small- to mid- sized projects and am very happy. My needs aren't elastic at all, though.
Its overpriced and underpowered. Linode, RackSpace, and many other VPS providers perform better and are a much better value.
To me where it makes sense to go with a dedicated or self-hosted solution is when you start needing servers with lots of RAM, because all of the VPS providers will gouge you when you need RAM. They will charge much more per month for the server than the cost of the extra RAM chips and CPU and you will have paid for the server within a couple of months.
I think that VPS providers will have to start lowering the prices for their higher RAM instances pretty soon because RAM prices have gone down so far.