I think it started to die when Google decided the XMPP spec was not good enough for them and deviated from it, eventually abandoning it completely. Then, came Facebook and almost everybody people knew was there so it was convenient.
I wish it would come back though. OTR encryption was fairly easy to setup and under my control.
It was my impression that Google dropped XMPP support not because of the spec being "not good", but because they saw now advantage allowing the federation, since nearly nobody else federated with them, while it comes with a cost.
The XMPP specification is open and in large parts malleable, nothing would have stopped Google from participating in improving it.
XMPP is still used in many places, including in online gaming https://xmpp.org/uses/gaming.html. Unfortunately without the federation support (which can be explained in those specific cases).
federation with xmpp doesn't need to be configured. it is automatic. all you need to do is to send a message to someone on a different server. i am not on google, so i used this all the time to talk to people on google. until they stopped.
to get advanced features, google would have had to create a client that uses those features. much like they created the chrome browser.
i guess there just wasn't enough value in doing so. and there were to few people like me who communicated from the outside.