RamNode just announced that they will discontinue their 128MB OpenVZ VPS. This was the cheapest VPS they offered at $15/year. It was about as low-end of a VPS as you can find in terms of RAM, but it was still powerful enough to use as a backup server or a development server to practice coding on. I even used one of these to host a little website on.
The problem is not that the 128MB VPS is unprofitable in terms of the cost for the amount of space and memory you get. The problem that RamNode and other cheap providers face is the depletion of IPv4 address space. The world has just about run out of IPv4 address space, but has not yet fully transitioned to IPv6 address space. This means that IPv4 IPs are becoming a hot and expensive commodity. I have seen ISPs lease IPv4 IPs at a dollar per IP per month. This is just not a price RamNode can afford to pay when their users are paying only $15 per year.
It also doesn’t make much sense for RamNode to pass the cost on to their users. Let’s assume an IP address costs $12/year. A user who is paying $15 per year is not going to be happy to have his or her costs almost double without any sort of increase in service or performance. Moving the price up from $15 to $27 for a 128MB VPS is just not going to work. There are currently too many cheap VPS competitors out there.
IPv4 depletion is a serious issue and will only get more costly as available IPv4 addresses become more rare. Low-end VPS providers will find that they must include the cost of their IPs in the cost of their VPS. As long as IPv4 is a necessity on the Internet, a cheap VPS will be harder and harder to come by.
With unlimited IP addresses, the business model of many users paying a small amount is perfectly viable. When IPs become a scare resource, then that model is no longer sustainable. Rather than having many low cost users, VPS providers will search for a smaller amount of high-end users who are willing to pay a higher cost.
This is slowly going to be true of all hosting providers who offer unique IPv4 addresses. Using some kind of IPv4 NAT is not going to be a viable option due to abuse. If one bad user gets hold of a shared IP he or she can destroy the reputation of that IP making it not usable for email and other common services.
It would not be surprising to see many low cost VPS users moving over to shared webhosting. A shared webhosting server allows multiple different users to use a single server IP address. This would solve the problem of IP cost, but again, the risk of one bad user ruining the shared IP for everyone else is high.
The solution is to move over to IPv6 space. I expect it to be a matter of time before hosting providers begin to offer cheap IPv6-only VPSs. I would be perfectly happy buying one of these myself for a development environment or something that did not need to be accessed by the general public.
IPv6 has not spread to the whole Internet yet. It is not practical to use IPv6-only space for something that is intended to serve the public. We are not at the point of being able to host a website over IPv6-only. There are also a number of IPv6 peering problems which need to be worked out before the Internet as a whole can move to IPv6-only.
Luckily for those of us who already have a RamNode 128MB VPS, RamNode will not discontinue our services (as of yet). If you are looking for a cheap VPS check out out our VPS comparison tool. It shows the most reputable VPS hosts, including RamNode, and what they offer. At the moment BuyVM / Frantech still offer 128MB VPSs.
