I'm a web developer who is one half of a start up. Part of our business is designing, building, and hosting websites for clients. Past experience has shown me that webapp maintenance can, at times, be time consuming. That said my mantra thus far has been "outsource, outsource, outsource!" when comes to in-house tech needs so that I don't get tied down dealing with maintenance issues. Instead of our own file/mail/wiki server we use Google Apps. Instead of hosting our own project management system we use Basecamp. So when it came to setting up a blog for our recently launched company site it seemed logical to go to wordpress.com, set up the blog there, and put it under a subdomain of our main domain. Now, after reading/discussing more about SEO and inbound marketing, I'm not so sure that was a great idea. It seems like subdirectories work better for bringing authority to your domain.
What I wonder is whether or not it's worth it to leave wordpress.com while my blog is still new and just set wordpress up as a subfolder on our company site (which I maintain and host). I can do it, but I am reluctant because of the cost it incurs (time and VPS resources). Is a subdomain really that much worse than a subfolder? Old battle, I know, but I've done my research and would still like to know thoughts on my particular case.
Also, we are a company that provides the aforementioned services, but we are also launching a product with its own site in just a few weeks. It's a second brand, and we want it to attract the most attention. Our blog, however, will encompass everything we do (which is a lot -- tech stuff, print making, graphic design, etc.) and it seems to sit best under our company domain. However, if we want most attention to go to our product, should the blog go under the product domain as a subfolder?
First I'd like to make an assumption, if you want to have it in a subfolder then it is likely at some point you want to host a site, so this makes null and void your argument about not having to worry about hosting. It sounds like you are going to have to bite the bullet at some point and get a faster host.
Not saying anything bad about Godaddy because I haven't tried for myself, but with many basic web hosting packages wordpress is likely to run like a dog.
So you are left with three options:
Point 3. seems bloody pointless, because if you upgrade later you are going to have to go through moving your files around, something you don't like doing.
Now your arguments for one and two are currently based on SEO. I would argue for 1 as a definitive win if you are going to upgrade and host a site at the main address anyway.
As far as SEO goes, just google "subdomain and SEO" and you will see hundreds of articles.
This blog entry says it pretty well:
For blogs, I prefer a subfolder (http://www.seomoz.org/blog/) because the link juice which is sent to that blog is going to be naturally distributed to that main domain, and other subfolders under the domain.
You may want to consider posting your wordpress question over at http://wordpress.stackexchange.com/ - perhaps some tricky mod rewrites can get your blog.domain.com to resolve to domain.com/blog across boxes.
I'm also a "outsource when necessary" type of guy, but if you're in the website biz, how tough is a single blog? wouldn't you want your own instance to install you own custom plugins, a/b testing, "talk with us now" module?
If the blog is going to be a press machine of sorts (and less of a vanity blog), spending the cycles to know whats going on on your machine vs. spending cycles interfacing with yet another provider with their specific rituals / interfaces / tech support queues should be considered.
Completely understand your desire to have no servers to run - if it's not your thing, then it will eventually become a distraction.
I don't believe you need to leave Wordpress.com - my understanding is that they offer premium services where you can set up as yourcompany.com rather than yourcompany.wordpress.com - you have to pay for this but I don't believe it's terribly expensive.
I wish I knew this earlier as my site is self hosted and I haven't (as yet) had the time/money to put it somewhere decent (I'm limping along with Godaddy at the moment), and you would think Wordpress.com would take care of their paying customers, and that they would know their product inside out. Their premium services are described here: http://en.wordpress.com/products/ .
If you do decide to self-host your Wordpress blog, here's an article on the subject that might help: http://hostwordpress.com/ .
Don't think there is an issue about where exactly on your site your blog goes - there is some good advice on structure in the answers to this question .
Hope this helps.