Tooling and ease of use.
Because of this, any binary format was not going to be popular※.
We can kick the question up to why is HTML not compiled? Well, because it was never meant to be a programming languages (and, despite being a declarative way to tell the computer what to do, the consensus is that it isn't), it is for documents instead. Why compile that? You don't need a compiler, you need a document viewer. Part of the popularity of HTML on its beginning was that it was simple to implement a viewer, and viewers were made for different platforms. A binary format would have been an obstacle.
HTML, was, of course, based on SGML, which also was text based. Why was SGML text based? It was meant to remain readable, independently of the technology, long term. Thus, it could not depend on a particular machine code or binary format that would require an specialized interpreter that might become unavailable as technology changes.
※: Except Flash, right?
If you wanted to play simple animations on the web, Flash would give you an smaller file size (and thus faster to load) and higher quality than the alternatives. Because it was vectorial. In addition to that, Flash popularity also derives from the fact that the player was free, and the tools to produce it were easy to use. Then eventually ActionScript was added to it.
Plus, it would be easier to make it tolerant to mistakes… Alright, that needs some context…
This is also why competing browsers approached some level of parity on non-standard behaviors and features. Emphasis on "some".
On the other hand, if the browser was strict, as in the failed XHTML, any small programming mistake (say, a missing
;) would mean a failure to render the page or run its code.
Well, it is easier to implement a tolerant interpreter than a tolerant ahead of time compiler. Well, it is easier to implement a interpreter than any other kind of compiler, period. However, the incentive to make it tolerant would translate into an incentive to not go into the effort of using something else than an interpreter.
Speed, of course.
Around this time Ajax was coined, Apple decided to not put Flash on the iPhone, and a lot of standardization effort of web technologies began around this time.
It is this same desire for large client-side web applications that would spark NaCl, asm.js and eventually WebAssembly.