They wanted to repeat the success of the Wii. They thought they could do it with motion gaming guaranteed with every console, just like the Wii did, instead of it being an optional addition.
What they didn't understand was that the Wii craze (I stand by this statement whole heartedly) was a fad. "How could it be a fad if the Wii sold 100M units?" you might ask. Well, boy bands sold millions of records, but they were no less a fad. In terms of library, there's not much difference between the Wii, Gamecube, N64, and Wii U, other than the excess of shovelware on the Wii (you know, the staple Nintendo games, a big 3rd party exclusive game every here and there, etc). But the Wii managed to sell so much better. Because people thought "omg, it's like I'm actually in the game", not because of the games themselves (otherwise N64 and GCN, and now Wii U would have sold much better).
But, the thing is, people got over it (as they do with fads). It's why Wii sales fell off a cliff after 2010 and went back to regular "Nintendo numbers" (outside the Wii, Nintendo's highest selling home console was its very first attempt, the NES, at 62M. Everything went downhill afterwards). Microsoft tried to cash in on the fad too late. Nobody cared about motion gaming after just a few years. But MS tried to mandate it. So it, naturally, backfired.
