One thing I don't see mentioned, though the other reasons are fairly valid -- the 'deflate' compression that was actually a non-backwards compatible update to PKZIP was superior to 'compress' -- gzip uses it, though not the PKZIP format.
There was for a good while a bit of a "compression arms race" with folks looking to find the most optimal compression to save precious time on BBS dial-up. For a while 'ZIP' won, then 'ARJ' managed to squeeze out a bit more, and so on -- though I think diminishing returns kept things from going too far beyond ZIP/ARJ on many BBSes.
There was for a good while a bit of a "compression arms race" with folks looking to find the most optimal compression to save precious time on BBS dial-up. For a while 'ZIP' won, then 'ARJ' managed to squeeze out a bit more, and so on -- though I think diminishing returns kept things from going too far beyond ZIP/ARJ on many BBSes.