I believe it was discontinued due to lack of use/popularity. It sounds like it was useful to you, however. Let Apple know your views on this Product Feedback - Apple
I believe one reason for its lack of popularity was that most teens, pre-teens, and adults seem to strongly prefer to simply talk to their watches using Siri. Instead of pushing buttons, images, etc. I can't prove this with actual use data but it is what I have observed. I have never seen teens or pre-teens using walkie talkie but always see them voice commanding their devices to send messages, while walking, bicycling, driving, etc.
"Siri, text Dad, I'm busy don't bother me"
Note that these messages can be dictated and voiced back audibly, much like the walkie talkie app.
Even my 4-year old granddaughter does this routinely with her parents' phones on Siri, with Alexa in the house, with my watch. She asks my watch questions, sends her parents messages thru my watch, just with her voice, no buttons. I think she would have trouble pushing small buttons instead. Maybe there is a short window of children' ages when the walkie talkie is the way to go but I would guess it lasts only a short time. I think voice activated devices are the most popular thing now and are the wave of the future for the user community that includes the demographics most important to companies like Apple.
Not making excuses, but I think I understand why Apple did this. That said, it seems like it would have been a small amount of "overhead" to have kept the feature.