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I understand the physical differences but in a practical sense, what will be the differences? Speed?

I understand that I have full control over a virtual private server in a software aspect as with dedicated servers - what then is the difference from my point of view? Surely VPS's are easier to upgrade. Why are they always so much cheaper for the same specs?

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You can think of the major difference this way: With both, you are paying for root access, but you'll only get complete use of the hardware with a dedicated machine.

VPSes can frequently fall victim to one of the huge problems in the hosting business: overselling. At any given moment during the day, the average customer isn't going to be using all of the available allocated CPU time, memory and I/O, so it's "safe" to pack a server as full as it can possibly be. Let's use this 24-core server as an example1. 24 cores means 24 virtual machines, right? In reality, many VPS providers would pack more than twice that number on there and not even blink.

Quality providers limit overselling, but are more expensive as a result.

Commercial VPSes are appropriate for many workloads. Besides not always having a full core available to you (unless the host guarantees one), one of the common complaints about VPSes has to do with I/O speed. As this benchmark comparison from 2009 demonstrates, available CPU use is generally spread evenly over time, while disk access speeds are all over the charts depending on the provider.

If your workload isn't bound to disk I/O, then a VPS may be a fine solution for you.

1: I am biased in favor of the hardware provider I linked over all others in such a way that a disclaimer is needed.

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Note that getting 'complete use of the hardware' isn't necessarily a positive thing. With dedicated hosting, you often end up overpaying for resources you rarely use if ever. With a good VPS provider, you'll often get access to burstable resources when other accounts on that machine aren't using them; they can be a much more efficient use of energy, rack space, and money. –  Nick Jun 8 '11 at 10:29
    
That is an excellent point, Nick. –  Charles Jun 8 '11 at 15:29
    
Thanks, that's a great answer. I have a couple of queries. Surely if the specs I pay for say "2 VCPUs and Guarateed 2GB RAM" etc, I will be guaranteed 2 processing cores? Also, will the fact that it's running on a virtual machine make any difference to the speed of execution? –  Nick Brunt Jun 8 '11 at 16:59
    
@Nick Brunt: The term "VCPU" is a loaded one. In VPS jargon, it means that your virtual machine has access to something that will provide you with two threads of execution. Notice how it doesn't say that you have sole access to the underlying CPUs, unlike the guaranteed memory. When nothing else needs to run, you'll almost certainly get most of the available speed from the actual CPUs. When there are lots of other processes trying to run, you'll get worse than optimal performance, just like any overloaded server. –  Charles Jun 8 '11 at 17:32
    
Yes I see. So it really depends on how active my "neighbours" are... –  Nick Brunt Jun 8 '11 at 23:00
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Charles has done a good job of answering most of your question thoroughly. On the last point of cost, it's because the cost of a server is more than just the cost of CPU and memory - there's the case and power supply etc. You can double the memory and add more cores without doubling the cost of the server. You can then set up two VPSs and sell them each for the less than the price of the original server, but more than the CPU and memory cost you.

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It depends on the host, but usually VPS means you get a virtual share of a box. Dedicated means you get your own box. As far as speed goes, you'd need to get specs from the host - this could be different for every plan, and speed is going to differ depending on your use case (e.g. how much memory and processing do you need for your apps).

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