Living room gaming is a significant portion of gaming, and trying to find ways to expand the library of games that are playable on the couch wasn't a bad idea.

Everything they've done over the last couple decades - launching Steam, getting people invested in their libraries, expanding their catalogue, improving Linux support in gaming, learning about controller manufacturing, selling gaming systems - it was all basically a practice run for getting the Steam Deck on the market, and the experience they gained paid off in the long term.

As for why the controller would sell better now vs how poorly it sold back then... the assumption would be that this one was improved, and that the fact that the Steam Deck is successful while the Steam Link was a flop is probably a fairly large difference maker. Valve views Microsoft as a potential threat in the long term, which is why they're promoting Linux gaming, so there's no way they'd officially recommend giving MS money instead of buying a peripheral that puts money in their own pocket.