- It's not 10c/p per message which if you're talking a lot adds up. - You can send photos and videos and they show up in the stream. MMS isn't actually configured for most people even if it didn't cost 50c a message. - It does group messaging. - Avatars, UI etc
The reason it's popular over apps I think is largely down to savvy use of network effects, particularly that your username is your phone number, so it can scan your phone book and instantly show you who you know that has it. Plus it's available on iPhone, Android, Blackberry and as that article at the top of the main page says, J2ME (news to me but I'm in Europe so not that many feature phones around these days).
I'm from the UK but live in Barcelona and it has 97% penetration here.
Define virtually free? I pay like 10 bucks a month for unlimited SMS, that's hardly virtually free!!! If I didn't they cost like 10 cents a message. That's an insane price for sending or receiving a very very small message that costs the phone companies almost nothing to send. I see it working well for say prepaid plans or barebones plans.
Also, where I live (UK) literally everyone I know who has a smartphone is on Whatsapp. It's completely ubiquitous.
[1] http://blog.textit.in/your-path-to-a-$16b-exit-build-a-j2me-...