USB was initially designed as a replacement for the 'legacy' ports including PS/2, serial and parallel ports. For those, up to 12 Mbit/s (or even only 1.5 Mbit/s, thx @lvd) seemed reasonable - USB was never envisioned as a high-end, top-notch interface but as a lower-cost alternative for the above ports.
USB wasn't intended for storage applications back then, but even its ~1 MB/s speed was competitive. Mind you, the still-popular floppy disks made just 30 KB/s and even quad-speed CD-ROMs a mere 650600 KB/s.
ATA hard disks of the time could use up to PIO mode 2 with 8 MB/s.
Ethernet's 100 Mbit/s were considered back-bone speed in that period. Few people required that speed on a normal PC.
PS: For historical correctness, it's USB 1.1 that first gained wide popularity. Adoption of version 1.0 went rather slowly.