Both Casali and Valve co-founder Gabe Newell explained to IGN that Valve uses Half-Life games explicitly to push technology forward and turn heads. In a new interview with our own Ryan McCaffrey, Newell said "Half-Life games are supposed to solve interesting problems," and explained that Valve doesn't want to just "crank Half-Life titles out because it helps us make the quarterly numbers." Casali similarly says that they were "looking for what is going to make that next big impact" after Episode Two.
Casali says Valve doesn't move forward with projects that don't seem promising or aren't working out. "Our judge and jury is always the playtesting," he explains. "It never comes from us. It always comes from somebody outside. And they always tell us how we're doing. And no matter what it is that we're doing, we get validated by that playtesting process, and we stick to that religiously." Simply put, if we never got to play the Half-Life games Valve was messing around with, odds are we wouldn't have wanted to anyway.
The other reason for the long delay in Half-Life's return was the creation of Source 2, the follow-up to the Source engine used in Half-Life 2, Team Fortress 2, CS:GO, and lots of other games (including the Titanfall series). By the end of Episode Two, Valve was already looking towards its next engine, and had already learned the hard lesson not to develop both a Half-Life game and its engine from the ground up at the same time. "We [didn't] want to make that same Half-Life 2 mistake again," Casali explains, "of working on Source 2 and the next Half-Life game at the same time, because that created a lot of pain the first time we tried to do that."
To break the timeline down for you, Half-Life 2 was in development for six years, starting just after the first Half-Life's release in 1998 and ending in 2004. Episode One followed roughly a year and a half later in 2006, followed by Episode Two at the end of 2007. At that point, Valve knew it wanted to make Source 2 and didn't want to start work on a Half-Life game using it before it was ready – and knew it still wanted that follow-up to make an impact.
Seven years later, Source 2 was made available in Dota 2's Workshop Tools in 2014 before the entire game was ported to the engine in 2015. Meanwhile, Valve tells me Half-Life: Alyx has been in development for roughly four years, allowing the studio to start working on it around 2016 with a Source 2 engine that Casali says was nearly complete by that point.
Much more here - https://www.ign.com/articles/valve-explains-why-half-life-2-episode-3-was-never-made
