So, for first year it's not $495 but rather
Yes it is $495, a runtime will suffice if the server is in the cloud somewhere.
Also you don't have to necessarily upgrade each year. The only time you would consider upgrading a runtime with a new version is if there is a new feature you want to implement in your runtime sites, otherwise, a runtime can continue to receive BSV updates forever without upgrading. It just won't take on the new dev version features.
I would be keen to know what kind of price you charge for this app ?.
As it's been already suggested, going for the multi tenant server is the way to go. If you really get into trouble with scaling then at some threshold just set up another server and carry on doing this. At least you will have revenue flowing and quicker to the market with a rock solid trouble free application .