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Economically you can convert between a fixed price and a subscription price. A subscription has a fixed economic value governed by the interest rate. That is if

Economically you can convert between a fixed price and a subscription price. A subscription has a fixed economic value governed by the interest rate. That is if you have a thing that generates $10 every year, you should be able to sell it for $200 (if the interest rate is 5%.) I think this is something people don't often think about. But it makes it very easy to compare different costs and benefits that involve time. E.g. imagine a building is costing $1000 a year to maintain, and a new building would cost $50,000 to build. You can figure that it would be easier just to invest $20,000 and use the interest to pay for the maintenance. And save $30,000. But if building a new building cost only $10,000. It would be a good investment. And you would expect to save more money than you would gain from anything else you could invest in with that money. The same logic applies to subscription fees. If a software license costs either $120 a year, or a fixed price of $5,000. You should prefer the subscription. Hypothetically you could just invest $2400 and use the interest to pay the subscription. Saving $2,600.

zAy0LfpBZLC8mAC 9y ago
> Hypothetically you could just invest $2400 and use the interest to pay the subscription. Saving $2,600. Except you do not actually use software forever, and there is also no market for licenses for 10-year-old versions, so you have to actually calculate it as an annuity. So, if you expect to use the software for ten years, the NPV of 120$ per year would be about 900$ at 5% interest.
softawre 9y ago
Thank you for explaining!
neaanopri 9y ago
One problem is that this has some externalities. Part of the appeal of perpetual licenses is that I know that even if there has been a nuclear war, if I have electricity I can run Photoshop 5. Also, it makes much more sense for a large corporation to be exposed to the risks of investment return, i.e., it makes more sense for fixed-price software licenses. Well, maybe. Whoever has a smaller fraction of total expenses over cash reserves, and is this able to ride out a recession, should get the risk. In the case of a person with a big retirement fund, they should get the risk. However, in the case of someone living paycheck to paycheck, the company should get the risk.

zAy0LfpBZLC8mAC 9y ago

> Hypothetically you could just invest $2400 and use the interest to pay the subscription. Saving $2,600. Except you do not actually use software forever, and there is also no market for licenses for 10-year-old versions, so you have to actually calculate it as an annuity. So, if you expect to use the software for ten years, the NPV of 120$ per year would be about 900$ at 5% interest.

softawre 9y ago

Thank you for explaining!

neaanopri 9y ago

One problem is that this has some externalities. Part of the appeal of perpetual licenses is that I know that even if there has been a nuclear war, if I have electricity I can run Photoshop 5. Also, it makes much more sense for a large corporation to be exposed to the risks of investment return, i.e., it makes more sense for fixed-price software licenses. Well, maybe. Whoever has a smaller fraction of total expenses over cash reserves, and is this able to ride out a recession, should get the risk. In the case of a person with a big retirement fund, they should get the risk. However, in the case of someone living paycheck to paycheck, the company should get the risk.