A new revenue model for desktop applications is through hosted applications supported by advertising rather than selling shrink wrapped packages.
This is Google's model for things like Google Docs and Maps, and one of its strengths is that it does not rely on software controlled by MS, ie it will work on any platform and any browser (in theory).
There are two ways of creating desktop-like applications in a browser - flash or AJAX.
MS is trying to subvert Google's strategy by introducing a competitor to Flash, Silverlight.
The purpose of Silverlight is not just to compete with Flash in the markets where it is currently strong ie video delivery and advertising but to use it as a spring board for their web based applications like Office Live.
By requiring the use of the Silverlight browser plugin, MS thinks they will again be able to control the platform + browser needed for these applications allowing for similar amount of control as they currently do with the Windows+Office paradigm.
