The variety of Steam Machines will be one of the reasons they will fail. When developing for consoles, the devs have a clear set-in-stone configuration that they're working with, and a guarantee that it won't change for years. With the variety of configurations available, the already poor incentives to develop for Steam OS get even worse.
PCs have huge market penetration yet lag behind consoles in dev interest (a lot of PC gaming revenue is microtransactions in web-based games). Steam Machines are starting from scratch (or around 2% or whatever Linux desktop market share is), so I doubt many developers will want to spend time and money porting their games to Linux.
If you look at Steam Machines suggested minimum specs (i5-4xxx, GTX 660, 16GB RAM, 1TB storage), the price is unlikely to be below $400 or even $500 (someone will be trying to make money on them), and I don't think that many people will pay that kind of money to be able to play games that are now available for Linux and have uncertain developer support for future games.
Yes, Steam Machines will also be able to stream games from existing gaming PCs, but $400-500 is a lot of money for what can be done with a couple of longer-than-usual cables.
I am just hoping they release cheap hardware and it takes off which will hopefully make PC manufacturers shape up and quit price gouging their customers and only allowing stupid hardware configurations when you actually have more options available.
What will be interesting to watch is how this effort may bleed over into Linux gaming in general. While not likely to have a major impact, this could result in another viable option to Windows based gaming.