Providing SaaS solutions on a shoe string budget

These days there is lot of buzz around Software as a Service (SaaS), especially solutions targeting small and medium businesses. As terms like scalability, reliability, availability are all very important for providing these services, I started thinking on data center approaches for start ups to provide SaaS solution and came up with the following alternatives:

1. Procure all the hardware - install, configure and deploy the solution. A pretty expensive undertaking that requires a lot of $$$ - plus additional $$$ for disaster recovery . One alternative would be to rent servers from providers like Verio, Yahoo and GoDaddy but this still requires substantial investment.
   
2. Leverage SaaS platforms provided by companies such as SalesForce.com or Coghead which are pretty reasonable and they do have decent partner and developer program. However, the drawback to this approach is that the solution would not be portable and you are basically tied to their customer base and pricing bundles.
3. Get a web hosting solution from a solution provider like Yahoo! (cost approximately $12/month) which includes mySQL, PHP and Perl. Leverage them to develop the business logic and expose them as services. Leverage the social networks platforms like Facebook to develop the User Interaction and release it with limited free features. A great, cheap way to enter the SaaS market on a shoestring budget and once successful - go ahead with alternative 1.
   

Just a thought for those interested in entering the SaaS market on a shoestring budget.

- Yogish