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“Gowalla as a service will be winding down at the end of January,” he wrote in the announcement. “As we move forward, we hope some of the inspiration behind Gowalla — a fun and beautiful way to share your journey on the go — will live on at Facebook.”

It is, of course, a situation that we seen time and time again: startup gets bought, closes down. The best case scenario might be that the service lives on as a sort of zombie — unloved, undeveloped — while the concepts behind it get integrated elsewhere. In many cases, however, it simply disappears completely.

This time some immediately jumped to try and fill the Gowalla void. Path’s recent relaunch, for example, makes it a natural place for users to jump. Meanwhile Danish startup Everplaces — which allows people to keep a diary of places they love but is still in limited, private beta — even went as far as promising Gowalla users that they would be able to import their data.

The “sell up, shut down” pattern also prompted Pinboard.in’s Maciej Ceglowski to write a short post blasting free services:

Whether or not this is done in good faith, in practice this kind of ‘exit event’ is a pump-and-dump scheme. The very popularity that attracts a buyer also makes the project financially unsustainable. The owners cash out, the acquirer gets some good engineers, and the users get screwed.

Pinboard is a paid bookmarking service, so you can understand his frustration — and he’s right about the skewed, paradoxical economic logic that free services can fall foul of.

What he misses, though, is that many free services are venture funded with the idea that they can scale first and monetize later. On the surface this seems dumb, and in a lot of cases it is. But the whole dream of venture is that in a handful of cases it works fantastically: Facebook is, of course, still a venture-funded startup with a free product which has gone from no revenue to an estimated $4 billion this year.

Even Twitter, which has come in for plenty of criticism over the years for having no revenue, is now estimated to be making $150 million a year. (And Ceglowski, despite his own warnings, runs at least two Twitter accounts).

But this isn’t just about winners and losers, free versus paid-for. It’s about the fact that acquhires are Facebook’s kiss of death.

Zombie services

Including Gowalla, Facebook has acquired some 16 companies in the last five years. Most of them have been acquhires — purchases that are intended to buy talent rather than technology. Often, Facebook doesn’t even take ownership of the technology or user data as part of the deal (this is the case with Gowalla).

Of those 16 purchases, one was ConnectU — an acquisition that came as a result of the court case between Mark Zuckerberg and the Winklevoss twins. Most of the rest have met the same fate, with the services consigned straight into the dustbin. In many cases, the company website doesn’t even exist anymore: it’s as if the service has simply been wiped from the web.

In fact, of the 15 services genuinely acquired by Facebook in recent years, only a handful still have any sort of active presence. Snaptu has stopped supporting some of its products. Friendfeed and Daytum, meanwhile, are still alive but development has ceased. Dutch design firm Sofa probably did best by passing its apps along to another company.

Aside from Snaptu, in no case does the acquired service exist as an actively-developed service inside Facebook.The rest have their ideas pumped into Facebook’s main platform, often in ways that are barely recognizable to users of the previous services (NextStop’s travel guides, for example, have not really emerged inside Facebook in any way one of the site’s users would spot immediately).

It’s a move that leaves ordinary web users high and dry.

While this may not seem like a bad record compared with, say, Google (which has made more than 100 acquisitions over the past decade, many of them shut down) the difference is that most of Google’s purchases are of technology companies rather than consumer-facing services.

Many of the ones that are remain very much alive: I’m thinking of things like YouTube, Blogger and Picasa, which retain their name and identity, or others that have been carefully ported over in recognizable ways into Google products (Maps, Docs, Voice, Postini, Feedburner and so on). Facebook generally seems to buy consumer-facing services and then get rid of them entirely.

There’s a complex picture here, and Facebook isn’t the only problem. But it is a growing one for anyone who is considering using an interesting new web service or committing their data to some fresh site. Perhaps Ceglowski is right by saying that not having a good revenue model makes you more vulnerable to these approaches.

But perhaps it’s more simple than your base intentions, or whether users pay or not: it’s whether your company is actually providing a service — or just building neat feature that’s pretending to be a service. If you’re not really adding much to the world, your users are never going to end up happy — because you’re always going to die, or get eaten.

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The deal spells the end for Gowalla, which will close up shop in January just like many other Facebook acquisitions and relocate to Silicon Valley. Grabbing Gowalla gives Facebook a good team that has recently shifted from gamified check-ins to social city guides that users can contribute to with their own pictures, highlights and lists. Earlier, the company announced it would end the collection of virtual items, part of what I called an evolution in location-based services away from games toward more business opportunities.

Here’s the statement from Facebook:

We’re excited to confirm that Gowalla co-founders Josh Williams and Scott Raymond, along with other members of the Gowalla team, are moving to Facebook in January to join our design and engineering teams. In talking with the Gowalla team, we realized that we share many of the same goals: building great products that reach millions of people, making a big impact quickly, and creating new ways for people to connect and share what’s going on in their lives. While Facebook isn’t acquiring the Gowalla service or technology, we’re sure that the inspiration behind Gowalla will make its way into Facebook over time.

In a blog post, Williams said he was blown away by the things he saw at Facebook’s f8 conference and a few weeks later, Facebook called. He said it makes sense to combine forces and make the biggest impact together. Wrote Williams:

Three years ago Gowalla’s journey began when I took a photograph of Lake Tahoe on my iPhone. I had just finished a phone call with my dad, and I wanted nothing more than to share that photo and place with him. Not just in a text message or status update sort of way, but with a bit of weight that said “I wish you were here” and “this moment and place are meaningful to me.”

We created Gowalla to inspire people to go out and share those places, photos and stories. The past three years have been quite the journey, oft-times in a very literal sense!

The Gowalla Passport has become a record of all the places we’ve visited, the people we were with, the photos we took, and the stories we told. Many of you even use Gowalla like a scrapbook of sorts — a place to keep all those memories.

…We know how much many of you loved Gowalla. It’s been the highlight of our lives as we’ve built it with your help over the past two years. As we move forward, we hope some of the inspiration behind Gowalla — a fun and beautiful way to share your journey on the go — will live on at Facebook.

The sale of Gowalla also shows that the location-based market is still in flux, and it’s still not quite clear how everyone is going to make money here. Gowalla launched in 2009 but struggled to compete against Foursquare, which surged past 10 million users this past summer, far outpacing the 2 million users Gowalla had. But Foursquare is also still working out its business model. There is a big opportunity in helping connect merchants with mobile users, delivering targeted ads and offers to them and serving as an alternative to printed coupons and traditional Yellow Pages. But it’s unclear how many competitors can make a go of this and pull in enough money to thrive. Gowalla had previously raised $10 million from the Founders Fund, Shasta Ventures, Greylock Partners and other investors.

Facebook has a history of making so-called acq-hires, buying up startups primarily for their talent, not their products. Gowalla is well regarded for its design chops and could certainly help Facebook as it rolls out Timeline, its personal history feature. That could help Facebook compete with a resurgent Path, which just put out a new version of its app designed as a smart journal for users. Gowalla could also help Facebook refine its location-strategy. Facebook has pulled back on check-ins and has instead opted to allow people to tag their locations in status updates. Also, Gowalla could help with improving Facebook’s mobile product, which could use a boost especially as more mobile-focused competitors emerge.

I liked Gowalla and thought it was a good-looking service. But it didn’t seem to capture people’s attention in the way Foursquare did. Even one of its defining features, virtual items, was ultimately a “distraction” for many users, the company said. The move to become a city guide came late and I noted earlier that it wasn’t clear if it was designed for locals or tourists. Facebook has picked up a smart team with good ideas and it’s going to need them all if it wants to stay at the head of a social market that is increasingly about mobile and location.

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Neither Facebook nor Gowalla have confirmed this news directly at this point. We have reached out to both companies and will update this post as we learn more.

Update: A spokesperson from Gowalla has told us that the company does not comment on rumors or speculation, and would not confirm one way or the other the truth of the CNN report.

Update 2: AllThingsD has obtained a note from Josh Williams, the founder of the company, telling investors that the “ink on the deal is not dry” and that the situation is in a holding pattern. But not a denial of the actual deal taking place.

[original post continues below]

The deal comes on the same day that we learned of another bit of Facebook mobile news: the company has hired a new head of mobile developer relations, James Pearce, who had been in a similar role at Sencha.

CNN is reporting that the deal (value undisclosed) is of the “acqhire” nature: most of Gowalla’s employees, who are currently based in Austin, will join Facebook in Palo Alto to work on Facebook’s Timeline feature, launched earlier this year at its f8 conference.

However, if this deal is actually happening, there could be more to this than just a talent acquisition. Given Gowalla’s emphasis on photos for its check-ins, and its growing database of city-specific information about venues that its users visit, you can see how some of that could form the backbone for further mobile services launched (or integrated) by Facebook into its own network. That would omplement what Facebook already offers users (check-in places, local deals) and making more stickiness for its site for mobile users, and for those on PCs checking up on what their more mobile friends are doing.

However, it is not clear whether Gowalla would remain as a standalone service after a would-be acquisition from Facebook. The company has a strong track record of closing down startups, and ingesting what it needs and wants from them for its own projects.

Gowalla held a lot of promise when it first launched in 2009 by Josh Williams (pictured), who remains head of the company, but ultimately it lost some steam among a sea of location-sharing apps. So what started as more of a check-in service that competed with Foursquare was relaunched in August 2011 with a pared-down set of features based around the idea of location sharing and travel guides.

As for revenue drivers, there have been some deals for “badges” to promote certain places — for example a deal with Disney (NYSE: DIS) for its amusement parks — but it’s unclear whether Gowalla has had enough people using these services to make that marketing angle work as a business. A deal with Facebook, if it is true, could give the basic concept behind Gowalla a significantly bigger audience — or let the engineers who created it add some of that sparkle to Facebook. And then, who knows, it might just pop.

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The relaunch is an important step for Gowalla, which needs to find a better way to differentiate itself. It had tried to emphasize games early on with virtual goods called items, which could be collected and traded. But it announced last month that it was ending the use of items and was refocusing on its core mission of encouraging people to go out and explore the world.

Now, Gowalla is looking to take a piece of the travel market, by building more than 60 curated city guides that help tell people where to go and what to see. The guides are written in-house by Gowalla, or by partners such as Disney or National Geographic. They incorporate a lot of the location data provided by users in the past, including favorite user highlights arranged by category within a city.

Users are also encouraged to build “stories” out of their travels, which start with check-ins but can be augmented by tagging other people and gathering pictures uploaded for particular stories. The emphasis is less on the initial check-in and more on the interaction that happens afterward, which can be put together and reviewed later. So Gowalla is trying to have it both ways, reaching out to travelers as well as locals looking to better discover their surroundings.

There are some interesting ideas at work, but the features aren’t without precedent. Color has attempted to group pictures around specific spots, while Gogobot takes Foursquare and Facebook check-ins and location tags and turns them into sharable travel journals.

But the bigger story is that it’s not easy to make a buck or establish a runaway success in the location business. Foursquare is the leader in dedicated location-based services with more than 10 million users, but even it is still working out how to turn on the revenue engine. Gowalla, which has about 2 million users, has had a tougher time capturing attention in this market. So it makes sense that the service would want to distance itself from Foursquare and try to occupy a space that straddles travel and local discovery.

Will it be enough? It’s hard to say. In some ways, it could find itself overlooked because it’s not quite clear which audience it’s trying to hit between tourists and locals. I do like the idea of preserving memories and creating a lasting resource, but I’m not sure consumers will think of Gowalla for that. At least Gowalla is trying something new, and at this point, it looks like a necessary step for staying alive in the location market.

Images courtesy of TechCrunch

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The latest example of businesses shying away from location-based games is Gowalla’s announcement today that it is doing away with items in its next release of the app. The items were virtual goods picked up by users for visiting locations, which could then be traded or left for other users. Gowalla’s CEO Josh Williams said items were used by less than half a percent of its active users.

He said virtual goods unlocked through real world interaction is a remarkable idea, and one that helped Gowalla get its start. But now it causes more distractions than joy for most. What Gowalla will focus more on is helping people explore the world, in keeping with its passport theme.

SCVNGR, another location service that wants to build a game layer on top of the world, invites people to play and create location-based games. But these days, the big news for SCVNGR is around LevelUp, a daily deal program that uses some game mechanics to build consumer loyalty for merchants. LevelUp’s game elements are more limited, however, and consist mainly of establishing three daily deals instead of just one to ensure that consumers come back to a business.

SCVNGR still has a business built off its traditional gaming model but it seems like that real dollars are in tapping local advertising dollars through LevelUp. SCVNGR’s move with LevelUp seems to acknowledge that games by themselves have a limited appeal, and that the real opportunity is in improving on the daily deal market.

Foursquare also has also moved beyond games and is focusing on more recommendation services through its Explore tab. More recently, it rolled out a list function for curating and sharing locations and event check-ins, which allow people to use Foursquare as more of a digital scrapbook. And the company’s been lining up big daily deal discount partnerships with Groupon and Living Social, too. As Foursquare co-founder Dennis Crowley told me last week, the check-ins were the first step in building up a user behavior that can unlock a lot of other services and features. Games were the first reason to check-in, but now there are plenty of other reasons to do so.

What it all means is that location is maturing, and while there is still a place for games, location-based services are becoming more about business. Which makes sense, because these companies are interested in making money first and foremost. We’ll still have game mechanics, and other start-ups might come along with even better ideas on how to use games and virtual items, something others have argued that Gowalla didn’t manage well enough. And gamification can still work as a motivational force for all kinds of behavior, though it needs to consist of more than just badges and virtual goods.

As Gowalla’s Williams points out, there’s a lot more to location than games. A JiWire survey last year found that scoring points was the least popular reason for checking into a location, while getting a deal was the most popular motivator. There’s so much opportunity for end users in terms of discovering the world, documenting travels, unlocking deals and finding people nearby. And many of these things are easier to monetize for companies, too. So while I don’t think we’ve seen the end of games in location, it looks like we’re moving on to bigger ideas and more lucrative opportunities.

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A couple of months ago, I wrote about LocalResponse, a real-time social advertising platform that allows local retailers and national brands to send out targeted tweets to consumers, based on where they’ve checked in or where they say they are on social networks. The service has found that its targeting work is paying off with significant engagement from consumers, who are responding to relevant, timely offers and discounts at impressive rates.

LocalResponse shared some results from three of its recent campaigns, showing how consumers have reacted to the outreach tool.

• An automobile manufacturer targeted consumers who checked in on Twitter, Foursquare, Gowalla and many other services at and nearby events hosted by this company. By timing the tweets to the actual events and hitting only people nearby, the manufacturer was able to get a 22-percent click-through rate and a 10-percent increase in followers over a three-day campaign, with 58 percent converting to the mobile website.
• A consumer packaged-goods company looking to promote holiday dishes made with their products sent in-store coupons and recipes to people checking in at major supermarkets and people tweeting about the company. The tweets got a 15-percent click-through rate, and more than half redeemed the coupon.
• A fashion retailer looking to drive traffic at a new location and build word of mouth targeted people checking in at the grand opening as well as people nearby with an offer to win a $2,000 shopping spree. The offer got a 40 percent redemption rate and impressions and click-through rates doubled, thanks to viral sharing on Twitter.

When I first wrote about LocalResponse, I said the company needed to ensure that it was relevant to users, provided real value and didn’t overwhelm them with offers. Otherwise, it could come off as being stalkerish or just ineffective. But the fact that it’s seeing such high click-through rates (banner ads usually have click-through rates of about 0.1 percent) and engagement suggests that it is working, or at least appealing to people in a way that is useful to them.

I think this shows that when consumers are offered something contextual in a relevant way, it can produce positive results. That’s the power of mobile: Where I am changes everything. An offer that finds me when I’m in the right mood or hits me when I’m in a place to take advantage of it can be a lot more effective than some broader mobile ad. That’s where the big battle is these days, in providing local deals that are relevant to mobile users. Foursquare’s recent partnerships with LivingSocial and others highlights how competitive it’s getting in the market for local offers.

There are some who might find this a little invasive, but I think attitudes are changing and that this kind of outreach can work well if done with the right amount of restraint. LocalResponse said it won’t send more than one message per day from its collection of advertisers and no more than one offer per week from any one brand or business.

It’s still early, and LocalResponse may be enjoying a pop from the novelty of its campaigns. But I think it’s got a smart product that leverages social channels well and makes sense in our increasingly mobile and social world.

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