They had it all. A nice niche in the social networking world. A [semi-]long history of service that was stable and efficient. A sizeable global user base. They were a leg up on their competitors with years of head start. And then they made the one fatal mistake of any start-up: They upgraded.
The riskiest thing you can do as a start-up (or online venture in general) is to upgrade your system. Even something as small as a "graphical revamp" can lead to droves of your users leaving for something less pretentious or easier to use. Because nobody really depends on these kinds of sites, your whole business is based on keeping your users happy and making sure the competition's site isn't more attractive.
Brightkite has been working on a revamp of their site ("BrightKite 2.0") for a while now. They finally unveiled it sometime last week. It crashed. They said they'd get some of the bugs worked out pretty quickly. About one week later the site was still down, when at the end of the week they announced it was finally back. Random outages over the weekend continued to plague them and users slowly filtered back in. Even today the service was still spotty. All this downtime caused a massive surge onto competing services such as Twitter, and though I don't have a definite reason why, i'd bet Twitter's downtime was in part due to over-stressing of their system by fleeing BK users (the 503 errors basically confirm their backend web servers couldn't handle what the proxies were throwing at them and were probably toppling over from load).
They're sticking with the new 2.0 site of course, and still trying to figure out the bugs. The system is slow. The mechanisms which made their old site usable (such as searching for a business near you) goes from mildly broken to nonexistent. The new features on the site seem like a laundry list of nice-to-have features from other social networks which nobody needs.
We all know Twitter is coming out with their own geotagging system Real Soon Now(TM). Google Maps has GeoRSS and other sites are slowly developing their location-aware services. As soon as a viable alternative appears, the BKers will try it out, and as long as it doesn't crash for a week straight they'll probably jump ship entirely. The new site just needs to have an "Add your BrightKite friends!" option and the titanic 2.0 will be rendered below the surface.
It's really sad because they've basically fallen for all the common traps inherent to a site upgrade like this. First and foremost you need a beta site. There may have been one but I never heard of it. You need a *long* period of beta, incrementally adding new users to see the trends in system load and to look for hidden, load-driven bugs. They should have know everything they'd need to scale in the future based on that beta site and have 0 bug reports.
Secondly, you need a backup. If you try to launch the new site and it ends up being down for 24 hours, you *have* to go back to the original site. There's no excuse for this one. If you can't handle switching your site from the new code base to the old one you've made some major planning errors.
I don't know where they plan to go from here. The reviews of the new site were somehow positive - I guess they had a preview copy of the site or they'd never seen the old one. But they fucked up by turning away all their customers. The biggest lesson you could take away from this is how web services have to work: release early, release often. Constant dynamic development on the live site. You simply can't afford to launch a new release after a long cycle of development. It requires too much testing and one or two things missed can sink the whole ship. Test your features one at a time and make sure your code is modular yet lightweight.
From my limited experience, the biggest obstacle to this method of design is in keeping your app reasonably scalable. The same hunk of code hacked on for years will result in some pretty heinous stuff if you don't design it right and keep a sharp eye on your commits.
A side note: this is a good lesson in backing up your files. People who sent their pics to BK and deleted them from their phones may eventually want the pics back. If BK dies they may find themselves wishing they had set up a Flickr or Picasa account to catch their photos. Facebook probably has the biggest free allocation of picture storage ("Unlimited") but they also don't cater to fotogs. As for the geotagging, well... This might not be a bad time for someone to create a lightweight geotagging app or library.