Ah yes, the * VZs. From my perspective, there's a few reasons. One, my friends were very privacy conscious and would often either not sign up or use a weird name (like some people do). This made it hard to find people. Two, the user experience sucked hard. Third, they had different domains for different subgroups (I remember one for school children and one for students).

Finally, if you went travelling to any other country (except Austria or Switzerland maybe), the rest of the world had Facebook. So to keep in touch, you also needed Facebook, which had a better user experience. Why bother with both?