Adding SMS support is a step in the right direction, but even within the app SMS and Hangouts messages are separated from each other, instead of being integrated into the same stream.

Hangouts for Android now supports location sharing and SMS. This way you can send a map of your current location (vs. finding and typing an address), and you can send and receive SMS (vs. switching between apps). Animated GIFs also play inline.
Google

Funnily enough, Facebook just removed SMS support from its Facebook Messenger app.