I run a profitable business on Appengine, and strongly recommend it.
As you mention, costs are low, but there are two other important
aspects:

1) Google has more and better sysadmins running it than I could ever
afford to hire, so I can sleep at night. Even when things go wrong
(and they do occasionally) there isn't actually anything you can do
except comfort your customers - all the high stress work is done by
Googlers.

2) Scalability - if you hit the big time, you're listening to
champagne corks popping, not servers.

Python is the most productive language I've come across, and the only
real downside is the learning curve associated with the datastore.
It's a very different beast to a relational database, and will have
you banging your head against the wall a lot until you learn how to
work with it.

Good luck!
Greg.

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