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 where four or five huge companies have their own universes of hardware, software, and infrastructure offerings, running from simple consumer devices all the way up to major enterprise-scale cloud computing services.

The idea, Steen says, is to be the company that helps individual users break out of those walled gardens when they want to—serving as the bridge for the wars between Microsoft, Apple, Google, Facebook, and Amazon.

“The more you get these integrated stacks of IT, the more you will find that there are demanding users who will say, ‘I don’t want that. I actually happen to like two or three programs that don’t exist in this platform. I want to access my photos that sit on one of the clouds while I’m listening to my music from the other cloud,’” Steen says. “The world where that service is no longer needed is the world where someone just has won, and there’s only one. And that world is not going to be here for a long time to come.”

So that’s the consumer side of Parallels—helping users break out of the tech giants’ digital fortresses. On the business-software side, the company is doing somewhat of the opposite: bringing order to fragmentation.

Steen says that despite the quickly growing market for cloud-based software and computing, small and medium-sized businesses have trouble getting an all-in-one service that fits their needs. He saw this up close in his previous job, which was heading up small and medium-sized business services for Microsoft.

“Small-business IT is this fascinating and incredibly ignored subject, whether it be by news media or IT analysts or equity analysts or IT vendors, for that matter,” Steen says. “I was head of SMB at Microsoft and certainly, it was the least prioritized, if you will. It’s actually gotten a lot better now, but it was a piece of the customer base that was kind of just there. There was very little actually done for them.”

A funny part of this equation is the fact that serving consumers and serving huge businesses is actually quite similar if you’re a big tech company. The typical individual user needs a pretty common, basic set of stuff: A chunk of hardware kitted out with word processing, e-mail, calendars, music and video players, photo software, and Web browsing—maybe even spreadsheets! And a huge enterprise IT department will need servers, databases, and line-of-business applications. Those needs can be handled by one supplier, too.

The people in the middle are a completely different story. Take your typical coffee shop in Seattle, Steen says—they’ve got a website that’s probably hosted locally, might use Quickbooks for their accounting, Excel for inventory and employee scheduling, and so on. They probably have a couple of PCs and a couple of Macs running it all.

“Go and look at the similar-sized business doing the same thing in New Delhi, and you’ll find a very different IT setup. They’ll probably have a couple of mobile phones—that’ll be their setup.” And it gets vastly more complicated as the business gets slightly bigger, and as you look at different industries, like a law firm or accountant or bookseller.

Most of these people are served by a local reseller of IT services—people who used to be called “web hosters,” Steen says, but are now able to offer a fuller collection of online software services and cloud computing.

Parallels’ goal is to be the platform that helps those local resellers offer everything their clients might want, and do it on a global scale. So a law firm in a growing country like Brazil might come to the local provider for web hosting, e-mail, spreadsheets, and calendars. But over time, the provider really succeeds if it can also offer quirky, industry-specific software services, like research applications, forensics databases, and court records.

This wasn’t quite as possible, of course, before the relatively recent rise of online-based software and commodity cloud services. But Parallels now sees a clear path to capitalize on those mega-trends and aggregate all of the small-business customers that the big IT players have left behind, just as the developing world starts getting supercharged with cheap technology. The overall market, Steen says, is some 150 million small businesses worldwide, consuming about $1 trillion a year in IT and telecommunications services—”the backbone of the global economy.”

“There’s no one who’s doing this. That’s kind of famous last words, but there’s no one who’s taking this end-to-end approach,” Steen says. “There are competitors who build all the pieces you need to build a system. But there is no one who does this soup-to-nuts platform. Literally, if you wanted to start a cloud-services business tomorrow, you could go … rent a couple of servers, buy our stack, and start. You do not need any more software. And there’s no one who does that.”

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

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