It is cheaper, but I don't think you are running an OS that will only use 12 MB of memory. This also doesn't include backups or system monitoring. And if you are EC2, well this just isn't an option if you are concerned about network latency.
And I'll only believe claims about backups if the contract contains an enforcable clause that I'm entitled to a pound of the CEO's flesh if/when they lose my data for whatever reason.
(Amazon S3 occasionally loses your data when two/three servers fail at once. If they had such a clause, their executive board would probably be short of a leg or maybe two).
What?