[sneak]

Google made it practical and offered widespread federation.

It was not used by many people to talk outside of Google servers (federation ability went almost entirely unused), and it suffered from tons of inbound spam problems, so they shut it off.

To answer your question directly though, XMPP doesn’t seem to be that great of a protocol. I’ve heard repeatedly that implementing it is a big mess, and that XML was a poor choice. I’m not sure that this is the reason that users don’t use it, though. It could be that these days, the client-server model is mostly obsolete, as due to battery constraints, phone users mostly rely on Apple or Google push messages to notify.