[Update: Loopt founder Sam Altman says the 500 DAU number is off by 100 times, and says he’ll be posting data shortly to prove it. We’ll update more as soon as he posts the data.]

A company that was at one time said to be seeking a valuation of $500 million sold three years later for a paltry $43.4 million. The company in question is none other than Loopt, and its demise can be attributed to the loss of its lifeblood: users.

Loopt’s daily active users — the folks opening and running the location app on any given day — were disappearing, VentureBeat has learned. Specifically, Loopt had as few as 500 daily active users at one point recently, a source familiar with the company’s app activity told VentureBeat.

When reached for comment, Loopt CEO Sam Altman said the 500 DAU figure is “off by orders of magnitude.”

Once a pioneer in the location-based application arena, Loopt was picked up by prepaid debit card company Green Dot in a head-scratching deal that was most likely orchestrated as a marriage of convenience by joint investor Sequoia Capital. (Sequoia has invested millions in both companies.) Based on the disastrously low daily active user figure, it seems fair to speculate that the deal was a forced merger designed to conserve capital and talent — and maybe even save a little face.

Green Dot could certainly find value in Loopt’s patent portfolio, and Loopt CEO Sam Altman, in an interview with AllThingsD, spun the sale as a way to tie location to payments. But really the exit is admission that Loopt, as an application designed to connect people, failed to innovate fast enough as up-and-coming startups such as Foursquare found more creative ways to connect people and places by way of mobile devices.

That’s not to say Foursquare will avoid a similar fate. History tends to repeat itself. The New York-based company raised $50 million at an estimated $600 million valuation last year, but has since been struggling to redefine itself as more than a check-in service. There’s also trouble at the top. Co-founder Naveen Selvandurai announced this past week that he was leaving the company. Kara Swisher at AllThingsD called the situation tense and we’ve heard from multiple sources that Selvandurai was pushed out.

With all the turmoil and turnover in the location-based application space of late, it seems fair to resurface the question of whether the genre is overrated. Perhaps location is a feature and not a business, after all.