a slow to compress format that does a good job sounds great for physical media which gets distributed, but sounds like it would be bad where the things being compressed are most probably many millions of individual images uploaded by users as you want a fast enough compression that you can start to return the compressed image to the user within milliseconds.

That just sounds to me like what happened to it, although I can't say for sure - did it perhaps also have other things about it that would make it a problem to be running lots of concurrent fractal compressing processes on a server?