The trade press is admiring PeopleSoft's latest tactic to frustrate Oracle's hostile takeover bid. At the risk of oversimplification, PeopleSoft is offering prospects double-your-money back in the event that Oracle acquires PeopleSoft. According to Computerworld, which obtained a copy of a letter from PeopleSoft to a prospect, "the payment would be triggered should PeopleSoft be bought within a year and if within two years the new owner drops the purchased applications or sets plans to stop supporting them."
But there's a problem with PeopleSoft's tactic. Earlier this week I was discussing this latest development with an experienced sales executive, and he asked how PeopleSoft can properly recognize the revenue from such sales if there is a refund condition attached? Revenue recognition is a sensitive subject in the software industry. A number of vendors in the past, including Oracle, have been investigated by SEC for using "side letters" that put conditions on the sale. Everyone is lauding PeopleSoft for its clever tactic in trying to close new business before the end of the quarter. But no one is talking about the accounting problem of booking sales with refund conditions attached. Am I missing something here?
Computerworld has an article on PeopleSoft's tactic, but no mention of the revenue recognition problem.
