> It seems like GP is calculating 20 years worth of subscription cost.
Well, yes and no. GP is calculating the discounted value of receiving $N annually forever (assuming a fixed constant interest rate r):
N/(1+r) + N/(1+r)^2 + N/(1+r)^3 + ...
= N/r
Thus, receiving N$ forever, given rates are 5%, is worth 20N.
(You can derive it from (for |q| < 1),
1 + q + q^2 + q^3 + ... = 1/(1-q)
)
Note, by the way, that currently rates are very low (say 1%), and thus receiving a perpetual stream of $N per year is very valuable, namely 100N. That makes the switch to subscriptions even more valuable to these psycho firms.
Except ... they are the ones lending you the money, so they would be the ones paying that high price now for the comparatively low future interest payments from you?
As you say, they're lending you what would've been the upfront payment for the software. They receive your subscription, and have to pay (in interest, to their bank) very low rates. So, on the (fixed) notional they currently pay low rates, while receiving high-ish subscription.
What is the basis for the assumption that the subscription is high-ish in comparison?
In an ideal market, you would expect the discounted subscription to match the upfront payment, which would mean that the "high value" is simply the price that they have to pay to get those future subscription payments (or that they could sell those future subscription payments for on some sort of "customer subcriptions market" if there were one). Once they've bought them, they also have the risk of rising interest rates wiping out the value of that investment.
(And also, this doesn't really apply all that well in this case anyway, because your typical software license subscription is not a perpetuity, the span of time that people will want to pay for using the software as it is now is rather limited, and they can pretty much stop paying at any point, while you'd supposedly have spent the loan from your bank on your programmers, and your bank will still want to get their interest payments.)
Well, yes and no. GP is calculating the discounted value of receiving $N annually forever (assuming a fixed constant interest rate r):
Thus, receiving N$ forever, given rates are 5%, is worth 20N.(You can derive it from (for |q| < 1), 1 + q + q^2 + q^3 + ... = 1/(1-q) )
Note, by the way, that currently rates are very low (say 1%), and thus receiving a perpetual stream of $N per year is very valuable, namely 100N. That makes the switch to subscriptions even more valuable to these psycho firms.