Wave was a good product, but they failed to deliver it properly. There are 3 reasons it failed, at-least for me:
Slow roll-out plus over-hype meant early adopters were given a service they couldn't use to communicate. These users soon stop opening-up Wave. Users who get their account in later batches arrive with a bunch of friends (yay!) but these friends have since stopped checking their Wave accounts.
No auto-notification means waves could go for weeks without being read. Informing someone you've sent them a wave via mail is adopted briefly before someone has a reality check and simply sends the information in an email instead.
Wave was good, but it meant using the wave client or some strange extension. I communicate through my mail client. I open it, I communicate, I close it. If there was wave support in default mail clients (Windows live mail/Outlook, Mail on the mac, or even Google's own gMail client!) then people would be more likely to send a wave in preference to a mail.
Of-course, Google can't rely on Microsoft and Apple putting wave support in their communication clients. Thus, until these three electronic superpowers sit down and play nice, I doubt we'll see a communication medium replacing email. Microsoft might have enough clout, but they'd try and make it proprietary, so it'd fail. Apple would make it open, but as they only hold serious sway in the mobile market anything they'd develop would probably be targeted there and so not be a full email replacement.
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