Typically, it is said that the "reason" for the development of the electric guitar is the need to play loud enough in the presence of other instruments. But why wasn't is also considered to simply put a microphone in front of the (acoustic) guitar? I guess if you can develop pickups and amplifiers, you would also have mics with a good enough quality.
Several good reasons. It was tried - I tried it as a kid. In front of the guitar, the volume changed dramatically with even an inch or two of movement. It got knocked.It picked up extraneous sounds. So inside it went. Then it rattled around. The feedback was pretty well uncontrollable.
Solid bodies solved a lot of the feedback problems, but that made the guitar a very quiet instrument - a mic just wouldn't amplify it enough.
Actually, mics are still used with acoustic guitars, in the recording studio, for ambiance, etc., so the idea has never gone away.
Obviously, the pick-ups idea worked so well, it's still with us, and looks like it's here to stay...
If you want to play loud in the presence of other instruments like you said, you will also amplify the other instruments and more noises (like your voice if you say something) through your microphone. Pickups for electric guitars are developed in such a way that they are mainly recording what you are actually playing on the guitar. It is also difficult for you to play the sound level you want since you have to be in the right distance.
I dont know what you mean by a mic in the front of an acoustic, but if you mean on a stand, that would drastically reduce mobility for the guitar player, if you mean attached to the guitar, it would mean decresed stability and a high possibility that the mic would fall (especially considering the size of the microphones at the time the electric guitar came around).
This aside from amplifying every noise exterior to the guitar... Also, with the evolution of the electric guitar, if they had just decided to attach a micrphone, countless thing wouldn't have been possible, like the use of a distortion pedal (the feedback of a distorted acoustic is just overwhelming, not having a solid body really counts...), the invention of effects such as sustainer pickups would have to be completely different and possibly would vibrate the guitar instead of magnetically vibrating the strings...
But most of all, music is about inventing and experimenting, and adding new things to what is around, so if at that time they had sticked to just putting a microphone in an acoustic guitar, the music made today would still be around the acoustic guitar, with everything that that implies...
An issue not yet mentioned is that in order to be useful, an acoustic guitar has to take energy from the vibrating strings in order to produce sound. Typically this is done by having the strings transfer some energy to the bridge which in turn transfers some to the front of the guitar, which transfers some to the air inside. The vibrating air inside then transfers energy through the hole to the air outside. The more energy ends up in the air, the louder the guitar will be, but taking more energy from the strings will shorten their sustain.
Nearly all guitars will extract some energy from the strings, but the amount of energy taken out by most magnetic pickups is extremely small. There's no way to avoid having the strings lose some energy to friction, either internal or with the air, nor to avoid having the strings transfer (i.e. lose) some energy to the neck and saddles. On the other hand, by eliminating the need to have strings transfer energy through the bridge, electric guitar pickups make it possible for a guitar to offer much longer sustain than would be possible with an acoustic guitar which needed to be heard more than a few feet away.