Server space is an optimum resource which is very costly. When we mention the cost incurred in setting up a server, we not only mean the cost price of a single server unit but the cost incurred to setup the whole premise in which the cost of the backup unit, additional ram, cooling agents an pumping agents, labor costs, loading, unloading, power backup, parallel server architecture setup, redundant storage and back up facilities and research and lab costs as well. Also the cost of various additional maintenance tasks and periodic change of hardware raises the cost factor drastically. So it becomes a very important objective of the company to increase the return on investment for the server as much as possible.
To maximize the return on investment the web hosting companies have to make sure that they use up every square inch on the server space efficiently. But in the traditional dedicated server setup, a single server was owned by a single user. This allowed the user to command a large load of resource at his disposal as and when the situations demanded. These packages were priced very highly and hence could only be bought by very few. But the users could rarely ever use the entire server efficiently. This was a huge waste of resources. To counter that the resource (server in this instance) could be partitioned into multiple servers virtually and leased out to a lot many more users. This way VPS hosting has been successful in efficiently utilizing the Server.