Parallels: Windows-on-Mac Guys Say Small-Biz Software is Sexy

2/2/12Follow @curtwoodward

Most people probably know Parallels as the company that puts Microsoft Windows on the Mac. And as Apple products continue their almost unbelievable proliferation, that’s not a bad business to be in—Parallels is seeing strong growth tied to Apple’s rise, particularly with more penetration of Macs and iPads in big business.

But if you ask CEO Birger Steen, the sexier side of Parallels’ business just might be the software that powers cloud services for local businesses worldwide. Yes, boring old business software, and for small and medium-sized businesses at that.

The way Steen sees it, the Renton, WA-based company is unlocking a huge market for customizable cloud-based software that will help millions of small businesses leapfrog into the 21st century. And, just like in the Windows-on-Macs business, Parallels isn’t seeing much competition in its way.

“It’s actually a little piece of the IT market that not a lot of people have dug into yet,” Steen says. “And eventually, if you get it right, it can be a huge benefit to the couple of billion people in the world who work for small and medium-sized businesses.”

Birger Steen

Parallels has a fairly complicated corporate history. As a standalone desktop computing software company, it started to make waves publicly in the mid-2000s. But it was soon revealed that Parallels was actually owned by another firm—SWSoft—that specialized in big IT software. The two eventually just merged operations as one company under the Parallels name. But it remains two very distinct animals—about a third of the business in consumer software, the other two-thirds business software. I wondered whether that means Parallels could conceivably wind up as two separate companies again sometime in the future. While Steen didn’t rule it out, I didn’t get the impression that Parallels wants to do anything but continue growing.

That growth has been going at a pretty good pace. Parallels said last year that it had exceeded $100 million in revenue for the first time, “and we’ve been profitable for quite some time,” Steen says. Parallels’ double-barreled businesses have been growing at about 20-30 percent per year, and the company sees that trend continuing for the foreseeable future. It currently has more than 800 employees, with about half in Russia, where its engineering operations are concentrated. And like Tableau Software, who we checked in with recently, Parallels could eventually be among the next generation of publicly traded tech companies in the Seattle region.

As Steen tells it, good timing had a lot to do with how Parallels got ahead. It also helps to have a big stable of smart coders, or as Steen puts it, “a house full of rocket scientists in Moscow.”

“I mean, literally, these are people who come out of the universities that used to educate missile guidance system guys and nuclear scientists and rocket scientists,” Steen says. “Russia’s a great place for that. A lot of really smart programmers.”

Parallels developed its original Windows-on-Mac software when it was still a small, independent company in the Seattle area. In 2004,before anyone really knew what the company was, it was quietly acquired by SWSoft (oddly, that fact wouldn’t be disclosed publicly for another three years or so). At the time, Steen says, the Parallels team was building virtualization technology, but it wasn’t for the Mac—this was before Apple switched to Intel chips, and under the previous standard, the hardware didn’t accommodate “virtualizing” another operating system on the computer.

But that started to change very quickly.

“Two things happened in short order. One of them was that Intel and the chip makers started putting virtualization support on their chips,” Steen says. “Two months later, Apple switches from Power PC to Intel. And two months after that, because we actually had a piece of technology that was almost ready, we had this product on the shelf. So we beat VMWare by a year to market.

“This is one of the benefits of having a house full of rocket scientists in Moscow,” Steen says with a smile. “You can do stuff like that. We had some basic technology standing, and we sprinted for six weeks.” Voila—the first Windows virtualization product for Apple.

Fast-forward to the present day, namely Apple’s recent year-end earnings report, which saw it post revenue and profits that make other tech-industry titans look like pikers by comparison. That’s a huge boost for Parallels, of course, as is the rising trend of Apple finally encroaching on some that Steve Jobs never really tried to conquer: big business. That’s currently the fastest-growing segment for Parallels’ desktop virtualization software.

But the company doesn’t plan on tying its fortunes solely to Apple’s success, no matter how smart that may look right now. A few years ago, Steen says, Parallels saw that the technology business was screaming toward a future … Next Page »

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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