The secret of affordable app engine is the pending latency slider. The default is CRAZY FAST. I have it set at min 5 seconds and max automatic. This is about 10x price reduction over the default settings. This prevents new instances spinning up until a request has not been served for 5 seconds.
The client replicates all the game rules so as far as the player are concerned there is no latency at all.
The game is called Neptune's Pride 2: Triton if any of you would like to have a look.
As a single developer, more interested in the game rules and player interaction, I would not switch to trying to manage my own servers for all the money in the world.
For those interested, right now I have the entire games save file stored in a blob property which I unpickle for each request.