Right, but you still need Google's XMPP server to support it.

It's still there.

For now.

Despite the clear warning signs, I am willing to put money on people whinging in a year or two when they shut down those servers, just like everyone got all upset about Reader.

And whining about shutting down Reader accomplished what, exactly?

Absolutely nothing of course. Didn't stop people from whining; people love to whine on the internet.

There was no good replacement for Reader two years ago. There are plenty of federated XMPP servers around now.

Plenty of federated XMPP servers, true, but unlike Reader, XMPP requires other users on federated servers to be useful. Since the Reader brouhaha I'd been considering moving away from GApps back to hosting my own mail and xmpp. Now Google has made the XMPP side of that worthless, 87% of my IM contacts use G(Mail|Talk), and will switch to Hangouts.

If they do that, people will migrate off Gmail too. I know I will.