> usually at a rate that's much cheaper than on-demand pricing
This is an area that is legitimate swindling/inflation by hosted app providers (e.g. DO Apps, Heroku, Render, Fly, etc). Oftentimes the per-vCPU/memory price is inflated over the underlying cost, even relative to a rather expensive underlying provider like AWS; which they'll reasonably justify by saying that this is the value-add, yeah you pay more but its more managed. But: when you have underlying access to the VPS, you can host more than one process! Which, of course, they're oftentimes doing on their end to cut costs.
Serverless functions can legitimately fall into the "always cheaper" category. If you've got twenty apps that each get request volume in the range of dozens-to-thousands per month; you could host that on a $5/mo VPS, or you could pay a few cents for a FaaS (Lambda, GCP, Cloudflare Workers, etc, all priced in the same magnitude). But the price-to-scale chart of serverless functions is really weird; they do hit a point where they're more expensive than just, you know, running a web server on a VPS. That point isn't at a super low volume, but its not far off from where its something to think about for a typical software organization. If I had a personal project that hit that point, I'd classify it as a good problem to have.
I also feel endless frustration in how there legit isn't a single cloud provider out there that (1) offers a serverless functions runtime, and (2) gives you the ability to set a non-zero budget which turns off the world when you go over budget. Many offer free tiers with no credit card, and some are even generous (Vercel and Firebase are two good examples), but I won't build on a free tier. I want to pay you. So, you upgrade and give a credit card, and now you're liable for one fuck-up bankrupting you, or throwing you on your knees at the mercy of their customer support. The severity of this fuck-up ranges from "my GCP account does just use a VPS, but egress is unlimited, so the bill was a bit high this month" to "the new dev changed a lambda function to call another which called the first one, and our bill is now the GDP of a developing nation-state".
The vast majority of the managed infrastructure world is, unfortunately, B2B swindlers just trying to out-swindle each other, only possible because they're all buying from each other, constantly raising prices, finding new ways to bill their customers, and losing any grip on the true (extremely low) reality of their costs. Supabase is better than most. I really do appreciate releases like this one. I'd also add Cloudflare to my list of "good ones"; they've taken a hard stance against charging for bandwidth, and I think that single decision had controlled a ton of the incremental costs we see from their newer higher-level product offerings like Workers.