Running your own virtual private server (VPS) was once limited to either profitable side projects or those with money to burn. The relatively high monthly costs (often $40-$60 per month) made it too expensive for personal projects that didn't generate income and more serious endeavors often used dedicated hardware, leaving VPS as a kind of no man's land in the middle.
That's no longer the case. Today the VPS is both cheap enough for personal projects and reliable enough for serious ones. Competition has driven down prices dramatically, so much so, in fact, that spinning up your own VPS is often cheaper than renting web server space from a shared host. These days, you can get a VPS instance running for less than $5 per month. When it comes to price, VPS hosting is the new shared hosting.
In some cases you get what you pay for, but in others, what you get is often much faster than you'd get for double the price in shared hosting. And with the VPS, you have an entire server at your command. Sure, it's a virtual server: but in all but the most extreme use cases, it will perform nearly as well as dedicated hardware. In fact, many high-end VPS options sometimes outperform low-end dedicated hardware. The main advantage of dedicated hardware these days is that it offers total control.
Of course, if you want to launch a new WordPress blog then you don't need dedicated hardware or a VPS, you just need a web host. While VPS can be set up to host web applications, they're going to take more work and more knowledge about Linux and networking. In fact, if you're looking for hand-holding – help installing web servers, configuring firewalls or setting up applications – then VPS hosting is not a good choice for you.
If you're a web developer looking to expand your server admin knowledge or a start-up that needs a more reliable, powerful set-up, VPS hosting offers a cheap, scalable way to get your app in the data centre. Since most VPS hosts these days have plans that bill by the hour – thank Amazon Web Services (AWS) for starting that trend – you can spin up dozens of virtual machines and play around with various server distros and software configurations for just pennies.
A VPS means you have (relatively) total control over the system and can do things like compile Nginx with exactly the modules you want, run OpenVPN to bypass geo IP restrictions, set up your own Minecraft server or even, in some cases, start your own shared hosting company.
There are downsides to VPS hosting. You'll need to patch your servers when vulnerabilities like Heartbleed come up. You'll need to be a bit more active, as no-one is going to make sure you're running the latest software, and while most hosts have excellent documentation available (as well as helpful user forums) installing software and getting everything working the way you want it is entirely on you.
Aside from competition, the ever-lower prices in VPS hosting are also driven by the improvements in virtualisation software that have been coming in the last few years. There are three major types of virtualisation used behind the scenes of VPS hosting.