According to the industrial designer who helped build the prototype for the Xbox One, the Kinect motion sensing camera was built into the device at one point. In an interview with Develop, Xbox industrial designer Carl Ledbetter said that the Kinect was once built into the Xbox One unit, but Microsoft ultimately rejected the idea because the system was too large.
"We pushed ourselves, can we put it all in one? Is that going to work? And the technology just isn't there yet. As soon as you have something much bigger than the Kinect sensor people don't want to put it by the TV, it's too big," Ledbetter said.
Ledbetter went on to say that he helped develop over 75 different prototypes of the system before Microsoft finally decided on the design it wanted to go with for the final build of the console. Another prototype was built that didn't have a disc drive, a nod towards a future where discs are no longer needed and everything is delivered via the cloud or through digital distribution. Obviously Microsoft thought that the industry wasn't quite ready to give up on physical discs and retail.
It's probably a good thing that Microsoft didn't build the Kinect into the final system - because it would have been pretty difficult to sell a SKU without it for a $100 less, right?