In countries like Rwanda, Pakistan and India it rules the roost. I'm sure many others too. The Internet is bigger than than U.S millenials. Their strategy of being on so many platforms (iOS,Android, Blackberry, Nokia Symbian, J2ME for dumb phones) really helped with the "network effect".
And don't underestimate the international angle. It's a globalized world, many people have contacts across borders, and they want to use their phones to talk.
For those talking about free SMS being a replacement, the killer user story here is the persistent group chats, with seamless picture sharing.
Frictionless signup (it just uses your phone number and automagically fills in your contacts) certainly helped too.
The behind the scenes story is that they extended XMPP to make it mobile friendly with proprietary customizations. I'd like to see a similar effort with the open standard itself. Then I'd like to see a mobile XMPP client open source project that makes quality execution on all platforms a priority. The Internet is being balkanized and the fight for standards based mobile messaging is the new battlefield.