I've certainly seen virtualization environments where RAM is a much larger fraction of the physical server's cost than the CPUs. How much RAM are you using when you aren't using many CPU cycles?
How much RAM does a web server need waiting for socket I/O? Not a lot. For most typical web apps, an instance of web frontend consumes a small fraction of the system's total memory. You could fit a surprisingly lot of such instances into a modern machine.
Big consumers of memory tend to be caching layer, which could (should, actually) run on different machines and bill based on memory usage.
I have to admit scheduling CPU and memory is an issue, but that shouldn't be the excuse to adopt a model that discourage optimizing for CPU usage.
