Excerpt from “The Real Story of Informix Software and Phil White” by Steve W. Martin
INFORMIX SUPERSTORE BARTER DEALS
In 1996, barter deals were nothing new at Informix. A Dow Jones article stated, “Mr. White, a celebrated deal maker, has used a series of imaginative tactics to battle hyperaggressive Oracle. When Informix landed Hyatt Hotels Corp., for example, Mr. White says he pledged to hold regular company meetings with the hotel chain. He tries to favor the long-distance service of MCI Communications Corp., another key Informix customer. ‘I’ve got a philosophy—I want to use the products of customers who use my products,’ Mr. White says
During 1996, the Company employed a sales strategy whereby various OEMs were approached with the concept of forming a “partnership” in which the Company would buy computer hardware from the OEMs to be placed in the Superstores and then used in joint sales efforts by the Company and the OEM “partner.” In return for the Company’s hardware purchase commitments, the OEMs were asked to enter into software license purchase commitments of similar or greater magnitude.
Many of the OEM partners lacked a sales force familiar with Company products and expected the Company’s sales force to have a substantial involvement in the reselling effort. The expense of the Company’s involvement in reselling the software for the OEM partners was indeterminable but substantial based on the Superstore program costs alone. To encourage its sales force to assist the OEMs, in late 1996, the Company began to offer higher commission rates if a sale was closed through an OEM partner rather than directly by the Company. In the first quarter of 1997, former management gave the sales force performance goals to obtain end-user orders to be applied against the OEM partners’ outstanding commitments.
Under GAAP, if “other vendor obligations remaining after delivery are significant, revenue should not be recognized, because the earnings process is not substantially completed.” The Company, however, recognized revenue at the time the OEM partners agreed to the purchase commitments notwithstanding that the Company was obligated to pay the costs and expenses of establishing and operating the Superstores and that the Company’s sales force was to perform all, or a significant portion of, the future reselling efforts.25
While the SEC argued that all obligations had not yet been fulfilled with the superstore-related transactions, even this debunked avenue was later reapplied. While not admitting or denying any of the SEC’s findings, Informix executed a settlement in April 2000. Informix agreed to an administrative order requiring it to stop any future violations of securities laws. The company was not ordered to pay any fines, and it didn’t suffer any other penalties.
