Google hangout doesn't detect contacts

This is not regarding the new kitkat hangout with SMS integration. I've been trying to use the hangout app, but whenever I select a contact, it tells me the person is not yet on hangout and asks me to send them an SMS invite.

I know for a fact these people are on hangout, and when they try to start a conversation with me from their phone they get the same message, even though they do not expericne that problem with other people.

A Google search and a search of this forum got me nowhere. Any ideas?

Sent from my SGH-I747M using Tapatalk

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