The transformation of Picasso's painting style has multiple theories. At least both his inner world and external factors (e.g. the emergence of photocameras) are said to have played a role.
Discussion
I firmly believe once he achieved fame and fortune he moved more into mass production and self-reference—something that would be taken to the extreme with the likes of Warhol.
Photorealism perhaps became a good enough aesthetic excuse, but Picasso, while competent enough, was never an extraordinary draftsman to begin with.
And yes, the general shift in the art markets and tastes of the collector and critics of Paris, London, New York was away from realism, a trend which at that point had been going strong for decades of the previous century.
But certainly at some point, Picasso, Matisse, and others simply set the tone of what gallery art looked like, and so it looked however they chose it to look.
It is said that it started as a joke while he was doing caricatures of one of his friends and moving the nose and the eyes and changing facial parts in order to express more of his personality. This following statement pretty much sums up the transit: "Are we to paint what is on the face or behind the face?"