I don't think this device and a Steam Machine (just a PC with a badge on it) will be in the same realm of competition. This would most likely compete with the Ouya, where the Steam Machine would compete with the 5th gen consoles.
> it'll be interesting to see if they can compete with Steam Machine
Of course not. Different market - Steam Machine will be an expensive flagship hardcore gamer device, while this is firmly casual.
The better question is whether gaming on this device can compete with a VitaStation or an Ouya... or even a Wii-U.
FireTV is built on Android and has a real controller for gaming. It won't compete with Steam Machines for high-end games but there's certainly enough hardware to pull off some great games and apps.
As for the gaming capabilities, it'll be interesting to see if they can compete with Steam Machine.