Is a VPS Cloud a good platform to start a hosting site on?
I am wondering if this could be a wave of the future or just a stop gap for many new hosts looking to start up on the cheap and still maintain reliability. It is an attractive offer to be able to start with just a little and be able to scale up as needed without having the expense of a dedicated server that you will not fully need until you get X amount of clients.
Are there any issues to be aware of doing it this way?
I think the strategy makes sense, it's a matter of getting the execution right. Making sure you have a solid platform (a 'cloud' in general is rather vague, and although scalability is good you need to be sure your basic platform is strong to deliver good performance). When you do grow it probably will make sense to move to dedicated server(s) so make sure you have a plan for that (as it will most likely be better value for you).
The biggest issue with large-scale cloud deployments, as I see it, is the ability to load balance and replicate effectively. Otherwise, it defeats the purpose of having the cloud. Let's say you could run around 4-5 VPS to add up to the same power as a single dedicated server - the price point makes them even on a month-to-month basis, but not if you include the costs of developing applications to work with it.
However, the cloud idea (having boxes on multiple ISPs) could allow for you to be fault tolerant and remove a single point of failure.
There are pros and cons either way, but it is an idea that may be worth exploring depending on the type of application.
The key value of a (cloud) VPS is the same as a VPS not in the cloud -- you end up paying less than for a full server as you don't need the resources of a full server. As such, it is a good choice always.
The advantages of a cloud VPS versus other VPS are:
getting a full OS of your own (rather than sharing using jail/containers) -- more flexibility. Note: this is a benefit only if you need it -- there is nothing wrong with jails/containers in general if you don't need the control and resource guarantees
easy upgrade and move to a full server or even multiple servers while preserving the image/functionality you already have. Most clouds offer multiple sizes VPS where you pay based on resources you require, and elasticity to scale your VPS up and down
generally (depenind on the cloud), high availability and faster recovery in the case of hardware failure than you get with the more traditional dedicated server approach
Some of the disadvantages (highly depending on the cloud solution you chose):
uptime/failure handling vary
sometimes the configuration is a bit unusual
In any case, it is a worthy approach (I hope you're already running your site in the cloud).