Habit Labs, the product of a 2011 merger between health gamification startups Health Month and Y Combinator-funded Contagion Health, is winding down its operations.

"It was the classic 'we ran out of money' story," co-founder and CEO Buster Benson tells MobiHealthNews. "We probably could have raised more," he adds, but says he decided not to pursue additional funding. Angel investors had put up $250,000 in August 2011.

"We're selling off various parts and looking for ways to open-source others," Benson says. Seattle-based Habit Labs this month sold Health Month, a game platform to encourage people to embrace and practice healthy behaviors, to Digitally Justified Technologies of Surrey, British Columbia. The principals of that company, Derek Thornton and Billy Cooter, promise in a blog post that they will improve mobile access to the site.

Benson says Health Month has 60,000 users, 15 percent of whom are paying customers.

The other part of Habit Labs, called Bud.ge, is described on its website as "mobile health improvement programs that don't let you fail." That product never got out of beta, and Benson says he is shutting the site down by Aug. 31 and releasing the code to open-source programmers. "I'm trying to help other companies in my field," says Benson, who sold a previous startup, personal improvement site 43 Things, to Amazon.

Benson's former business partner, Contagion Health's Jen McCabe, left Habit Labs in March to work for a robotics company. "It was a typical co-founder split," Benson says. "We sort of had different visions." McCabe did not respond to an interview request.

Benson says Habit Labs targeted not the small but enthusiastic market of hardcore fitness nuts nor people with chronic diseases, but rather a wider audience that perhaps likes to exercise and eat well but does not always make the time to do so. "I've always been interested in the mainstream market," according to Benson. "We were sort of alone in that strategy," at least when it comes to offering a gaming-oriented product direct to consumers.

DTC is a notoriously tough path in a healthcare industry where third parties pay most of the bills. "I think that the market is there," Benson says. "Unfortunately, our product did not find that market."

He has been candid about the failure. "I’m not giving up. Quite the opposite. As ugly and awkward as it is to take three strikes and refuse to walk away from the batters' box, I plan to keep throwing myself against the wall of technology and behavior change and making life better until something gives. Either my head’s gonna crack open or the brick’s gonna start chipping," Benson wrote on his Way of the Duck blog.

Benson tells MobiHealthNews that he will do "kind of a public autopsy, post-mortem" on Habit Labs to see where he and others can direct their attention in addressing health issues through gamification. "None of us have the answers yet," he says.