Game developers already have it pretty rough. If they develop for a multitude of platforms, there’s a lot of work involved in porting a project to all of those places. There’s Windows on the PC side of things. Some games may even support macOS. Over in console land, there are the various PlayStation, Xbox, and Nintendo platforms. That’s not even counting all of the mobile operating systems out there, too. Perhaps Steam Machines could’ve worked had they stuck to an established operating system such as Windows. Unfortunately, Valve went its own way and spun-off its own fork of Linux called SteamOS.
That move essentially took the enormous Steam catalog of games and rendered it moot. Only a fraction of the games found in the Steam store supported Linux and worked with SteamOS out of the gate. You can likely understand why this caused issues. Those with big Steam libraries found that many of the games they’d bought and paid for wouldn’t work on Steam Machines.
While Valve did its best to make its own games work on SteamOS, other developers weren’t as eager to do so. The choice to push SteamOS may have been the biggest driver in killing off Steam Machines (though there were plenty more).