Sources report that during an interview with former Microsoft VP Joachim Kempin, he stated: "The main reason was to stop Sony. You see, Sony and Microsoft... they never had a very friendly relationship, okay?"
Although Microsoft apparently wanted to partner up with Sony, Sony always seemed to keep Microsoft at arm's length. When Sony launched the first Playstation, Joachim said that "Microsoft just looked at that and said 'well, we have to beat them, so let’s do our own.'"
He also claims that while he worked at Microsoft, he went to its PC OEM partners and asked them to make the first Xbox. He said "The guys were smart enough not to bite, because they studied the Sony model and saw that Sony could not make money on that hardware model, ever." Microsoft didn't want to to copy Sony's business model for the Xbox; make the hardware themselves, sell it at a loss and make it up with game royalties.