It's an interesting use of an overlay network but the title of this post is misleading.

This is the failover of a private IP behind a virtual network gateway. The failover happens at layer 2 using the same gratuitous ARP you might send to a local switch but over a virtual network. The resulting network has properties that might be interesting to a private network service (especially one that cannot easily be proxied) but less so for public-facing services.

If your application speaks HTTP, a health-checking proxy server like haproxy on the gateway could perform the same service.

If your application is used by the public internet, your gateway machine(s) and network(s) between the gateway and application become the weak links. The traditional fallback would be low-TTL DNS.