We are a small start up in the early stages and are working on a SaaS-based Rails product. Currently, we use EC2 for a small instance and have a need for another large/extra-large instance as we are beginning to deploy to the Cloud and get ready to release our "alpha" version. While EC2 was my choice for numerous reasons (reliability, accessibility - small team is geographically dispersed, maintainability, and things of that nature), it appears to be rather expensive.

While the product will ultimately be deployed in the Cloud (be it EC2 or otherwise) and that experience would help the development team, would it make sense to purchase a physical server and stick it in the basement or bite the bullet and pay the price for EC2 (or other Cloud Providers)?

While such decisions are driven by numerous factors, it would certainly help to get the thoughts of other folks who may have been in similar situations. Hence, the post. Thanks much!