I suppose that's because in they end, they want to allocate all the RAM, CPU, and network link available on each physical host. If a host has a 1Gb uplink, 32 cores and 256GB of RAM, and someone takes 1Gb bandwidth, 1 cores and 1GB of RAM, all the other cores can't be sold any more. It's easier for them to just split each host server in n VMs than to do some fancy stuff to try to maximize allocation.

That being said, some providers let you tweak everything independently. I know Gandi does [1], there are probably others.

(I don't use them, no idea what their cloud service is worth, I'm just showing the sliders)

[1] https://www.gandi.net/hosting/iaas/buy

I wonder if this is what contributes to the large price difference - for example, a 1Gb/1core Gandi instance is about 2x the price of the corresponding Linode plan.

Very nice, just the sort of thing I had in mind. I can see how the resource allocation problem would get really hairy, though. I wonder how Gandi deals with it.

Gandi and Cloud Sigma both do this. You get sliders where you adjust exactly what you want to allocate: Memory, disk, CPU speed, cores, network.

They do.. but the trouble with allocating and utilizing all available bare metal ram/cpu/bandwidth is clearly built into their price at the lower end

1 core, 512MB, 20GB ssd = $19.84/month or $13.89/mo prepay compare to DO at $5/month

4 core, 8GB, 80GB ssd = $124/month or $86.88/mo prepay compare to DO at $80/month

Anywho.. multiple reliable hosting options always good :)

I'd guess part of it is that it's easier to use homogenous hosts, and chop them up evenly.