To be blunt, this is the right call.

Open-source is not always the best way to do business. As Google put it, XMPP isn't fully featured enough to incorporate messaging, SMS, MMS, Phone calls, Video calls, Group Calls, Group Conferencing, File attachments, Contacts, Calendar, Social Networking all-together.

On top, it may not be easily be portable to several different systems.

And if Google invested the needed effort, resources, time and money to develop a new standard. Otherwise to evolve the XMPP standard. History would've simply repeated itself.

Other companies would've adopted the standard and forked it for their liking, with no interoperability with Google's efforts. Hence, a new "WatsApp" wouldn't be able to communicate with "Hangouts".

The right call is to get this done right (SMS, MMS, Phone call integration is coming).
Build up a respectable user base.
Market thes hit out of it.
Expand to all markets (OSX, iOS, Android, ChromeOS, Windows Phone, WindowsRT, Windows 7, Windows 8, Xbox Infinity, PS4, Vita and Wii-U).
Then, if the "market is right" release the standard for the masses as an open-sourced project.

Otherwise, you get half-assed work which really doesn't hit home, and gets (ab)used (ab)normally.
Google being evil, is good.