Marketing Promotions = Revenue Recognition Commotion

by Mike Chadwick 10/1/2012 1:35:00 PM

While marketing promotions vary widely across software companies, SaaS providers, hardware appliance vendors and other tech 2.0 companies, the effects on revenue recognition share one common theme – added accounting complexity. Working with a myriad of technology companies, we regularly find the need to define revenue recognition rules to accommodate promotion types spanning offers as diverse as subscriptions with 90-day “free” cancellations, maintenance bundled in the purchase of a perpetual license or added months of service to a term-based agreement (13 months for the price of 12).

One such marketing promotion deferring revenue recognition into future periods is the product upgrade offer. An excellent example of this promo type may be found in a recent Microsoft announcement of a limited-time Office offer whereby purchasers of the current version will receive the next generation upgrade for free. Microsoft will recognize revenue once fulfillment is established, regularly at the point of license agreement activation (a.k.a. product acceptance), or upon the program’s expiration date (to capture the revenue on user accounts opting to not upgrade product versions in an orderly timeline). In Microsoft’s case, the total deferral is pegged at over $100 million.

Microsoft’s official press release may be read in its entirety at their corporate website: http://www.microsoft.com/en-us/news/Press/2012/Sep12/09-17OfficePR.aspx

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Marketing Promotions = Revenue Recognition Commotion

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