The Capitulation of a Social-Mobile High-Flyer

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Roughly three years ago, I noticed that a bunch of my developer friends were using Gowalla, the check-in application launched out of Austin (Texas). This was during the era of Foursquare Madness when everyone was rushing to check in. My dev friends remarked that Gowalla was prettier, had a better UI, and was more fun to use. I took them at their word and mentioned Gowalla to a VC friend. He met them, liked them, bought into the company. I was stoked.

Flash forward to this week, when Gowalla announced that it had been bought by Facebook. It was very clear that this acquisition was about Facebook buying the Gowalla UI/UX and engineering team, rather than a true accretive acquisition. Gowalla likely had minimal revenues, much like Foursquare, which is still building out business models. The acquisition of Gowalla, however, underscores that the check-in wars could well be a winner-take-all affair due to the limited mindshare they are playing for the rapidly diminishing network effects of being a slightly less popular check-in app.

Gowalla all but telegraphed it was in trouble when it announced that it would accept and use check-ins from Foursquare and other services. Then the company relaunched as a social travel guide in September. Of course, TripAdvisor and others already do some of this, albeit without the same location-based approach (they are more research oriented tools that turn you on to which of your friends has visited a destination you are interested in).

The acquisition is one of the first true capitulations of a social-mobile high-flyer. Two years ago it would have been hard to imagine Gowalla selling for anything less than a pretty penny. But a couple things have happened since then to devalue mobile apps. First, the location-based gamification juggernaut has not developed as quickly as some had predicted. Location-based fun and content is still huge and growing quickly. It’s a major area going to be bigger still. But it’s taken longer to develop than expected and along with that has come lesser revenues to chase.

Second, the competition for mindshare on handsets has magnified as many more eye-popping apps vie for attention. This means that network effects and winner-take-all are even stronger than with previous technology shifts. True, this happened with the broad Internet, as well, but the cost of putting up a really solid Internet site was far higher and the actual number far lower. The cost of building out a compelling phone app is now pennies on the dollar. Ergo, the competition and the blood on the floor. Foursquare is now the primary check-in app precisely because there just isn’t enough mental space left in the room for multiple viable check-in apps.

It’s a real street fight out there in the land of mobile apps and we will likely see more casualties, even among worthy players like Gowalla. I used and loved their app. I am sorry to see it go away. But I can’t say I’m surprised. I haven’t used it in a while — along with the dozens of other apps on my smart phone that I downloaded and now lay dormant.

Alex Salkever’s Personal Fight column appears every Friday on Street Fight.