That part is, in my experience, vanishingly cheap if you're not doing high rate DB transactions. The whole thing could clearly be moved to other managed hosting providers or private servers, and I'm sure ultimately you can run a somewhat constrained version on the device itself. That said, launching in the cloud seems like the right choice temporally (time-to-market) and economically. Focusing (sorry) on building the actual device seems like a reasonable choice to me.