He believed the sentence was excessive, and justice had already been served.
Conveniently, Obama gave a press conference on the day this question was asked, and he answered this very question himself.
Q: Are you concerned, Mr. President, that commuting Chelsea Manning's sentence will send a message that leaking classified material will not generate a tough sentence to groups like WikiLeaks?
He said that he believes Manning's sentence was excessive and she had already served enough time.
It has been my view that given she went to trial; that due process was carried out; that she took responsibility for her crime; that the sentence that she received was very disproportional -- disproportionate relative to what other leakers had received; and that she had served a significant amount of time, that it made sense to commute and not pardon, her sentence.
He also said he recognizes that Manning was a whistleblower, not a spy, (he just chooses to use a law designed to prosecute enemy spies against whistleblowers,) and that the commuted sentence is sufficient to deter whistleblowing.
And, you know, I feel very comfortable that justice has been served and that a message has still been sent that when it comes to our national security, that wherever possible, we need folks who may have legitimate concerns about the actions of government or their superiors or the agencies in which they work, that they try to work through the established channels and avail themselves of the whistleblower protections that have been put in place.
35 years was always excessive for whistleblowing
The question suggests that 7 years is too light of a sentence, that leaking classified information deserves a heavier sentence like the original 35 years. I think this needs to be addressed as well.
Whistleblowing has never warranted a sentence of more than a few years. Manning's sentence is highly unusual, and it is the inevitable result of prosecuting whistleblowers with the Espionage Act, a law meant to prosecute spies, who typically receive much more severe sentences.
Whereas actually spying for foreign powers can result in much lengthier sentences like Manning's original sentence, whistleblowing like what Manning did typically results in far more lenient sentences. Fortunately for us, Obama has prosecuted quite a few whistleblowers and media leakers, so there are a lot of data points to support this.
Still others, such as John Brennan and Leon Panetta, leaked information to the media but were never even charged with a crime.
So at 7 years, she already served far more time than any other whistleblower. It should also be noted that Sterling never pled guilty, or "took responsibility for his crime", yet his sentence was still a tenth of Manning's original sentence, and still half as long as her commuted sentence.