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Google replaced the default Android Messaging app with Hangouts for Android 4.4 KitKat, but it was lacking many of the features users have come to expect from other third-party messaging apps. That changed today, when Google updated the app to include, among other fixes, combined conversation feeds for both instant messages and SMS texts.
Whereas Apple’s iOS 7 combines iMessages and SMS texts into a single conversation stream per contact, saving you the need to keep track of multiple conversation threads, Hangouts previously separated the two. That has been fixed in Hangouts version 2.0. Phone contacts and Hangouts contacts are now better separated in the contacts list, to make it obvious when starting a text conversation or IM chat.
If you have Hangouts installed on your device already it should update automatically, but if you have yet to download the app you can get the latest version from the Google Play Store.