WARNING: In alpha.
There is a trend towards trying to charge consumers a subscription instead of a one-time flat fee. I think it is human nature to gravitate towards a constant influx of cash instead of a one-time payout. Even professors doing research on the topic encourage the practice: “It’s hard to initiate subscriptions. But once you get them over that hurdle, great things happen.” - Peter Fader
Because we overvalue subscriptions, it makes more sense for companies to try to charge one-time fees even if equivalent in value to the NPV of the subscription. In English, this means given a rate of interest, we can mathematically equate any subscription with an associated one-time fee and vice versa. Below is a conversation that fleshes this idea out:
Edwin: let me explain npv to you
kchan: ahhaha
Edwin: Basically, I've noticed that a lot of people tend to differentiate
passive and active income where they are essentially the same thing.
Edwin: So number 1: why are passive and active income the same thing?
kchan: uhm. they aren't
kchan: passive makes me money without me trying
Edwin: Because if you think about it, any active income you get now earns
interest.
kchan: yeah
Edwin: So really, what's the difference? Isn't interest passive income?
kchan: yeah well i'm talking like an ice cream shop
Edwin: So the realm of finance has a word/equation for this. It's called
NPV. The NPV is the present value of ALL future payouts of any given
resource taking into account the current interest rate.
Edwin: Because what you really want to compare is the relative interest
rates vs. amount invested.
Edwin: For example, if it costs you 100,000 to open an ice cream shop, you
have to compare the passive income of that versus the passive income
of just investing it into the stock market.
Edwin: That's NPV.
kchan: oh
Edwin: If you think that you'll earn less in the first years
Edwin: and more in the later years
Edwin: whereas a stock investment will earn a constant amount
Edwin: NPV will still take that into account
Edwin: because having money NOW is more valuable than having money later.
Edwin: does this make sense?
kchan: yes
Edwin: so what you really should be looking at
Edwin: is the triangle of interest rate vs risk vs how well you can hedge
risk by physically working for something or understand the business.
Edwin: (after NPV, the question becomes, given a perfect market, why do
different assets have differing interest rates)
Edwin: the answer is because of the cost of risk
Edwin: and supposedly the finance industry makes money because it efficiently
prices risk
Edwin: being able to control risk is a cornerstone of finance
Edwin: or at least evaluate and price it
kchan: hmm.
Edwin: the other reason why people like ice cream shops is because of
information asymmetry
Edwin: but that's like lesson 3
kchan: lesson 3?
kchan: information asymmetry
kchan: is there a book
Edwin: no
kchan: for this?
Edwin: if i were to teach it it would be lesson 3
Edwin: metaphore
Edwin: just take a finance course
kchan: grumble