Turns out the Steam Controller design is being overhauled. The touchscreen has been removed and now it's going to have traditional a/b/x/y/ controls plus a pseudo d-pad. It's rather like an inverted playstation controller currently.
The original purpose of the touchscreen was to allow quick changes to the four buttons surrounding the touchscreen so it could simulate things like 1-9 weapon selection or other actions that generally involved a lot of key presses. Beta testers complained that they spent too much time looking down at the controller to figure out what to press. It's worth it to note that the proposed overlay that was meant to go over games to address this issue was never programed by Valve so the testers never knew/used this feature.
Personally I find this news both good and bad. While I said for a while that I believe the Steam Controller would likely do poorly for some genres like the spectacle fighter, I'm not quite sure that completely throwing out the touchscreen and replacing it with standard industry controls is a perfect solution. It's also likely that this will greatly lower the cost of the controller but I do have wonder if people are being too reactionary with controller design. We've had a/b/x/y + d-pad since the SNES days and dual control sticks since the playstation 1. To me it doesn't feel like controllers have advanced all that much.
I really have to wonder if this is going to impact the Steam Controllers original (rather lofty) goal of being able to simulate almost any PC game with the controller and if track pads are good enough to basically sell a controller on their own, it's already easy enough to buy a cheap wired xbox controller and plug it into a PC.