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Traditionally, companies buy software and then install and maintain these applications on their own machines. That model is giving way to one where companies will buy subscriptions and access services over the internet from software developers that host their own applications. Some applications will migrate to the new delivery model faster than others, but all software makers should begin to explore the economics and necessary capabilities for online delivery.
Revenue models for these developers will change, since software as a service delivers fees over time rather than large up-front license purchases.
Customer service and R&D capabilities will also need to adjust to the reality of ongoing relationships with customers rather than periodic upgrades.
Source: McKinsey Quarterly, http://www.mckinseyquarterly.com
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