In 2006, the co-owners of the little-known Russian IT company Parallels Nicholas Dobrovolsky and Sergey Beloussov, took part in a meeting at the offices of Apple in Cupertino, California. [Editor’s note: the company now controls 90 percent of the market for applications to run Windows-based programs on Apple computers].
The Russian businessmen aimed to introduce the Parallels Desktop system, which allows Mac users to run programs written for Windows. The negotiations had already been going on for half an hour when it became clear to the Russian entrepreneurs that they had reached an impasse.
“We were trying to get into the Apple sales channel,” said Dobrovolsky about the events that took place six years ago. The main developer of Mac OS, Bertrand Searle, and the head of marketing for Apple, Phil Schiller, listened but declined to discuss practical steps forward. Suddenly, Apple founder Steve Jobs looked into the room. He asked who the two visitors were and began pelting them with questions. After a moment’s reflection, he said, “I think it makes sense!” Dobrovolsky remembers this as being a crucial day, after which Apple began offering the Parallels program worldwide.
Major computer programs such Microsoft Office have long been created for Apple, but many users are unsatisfied with their limited functionality compared to native Windows versions. Incompatibility with Windows cut Apple users off from a huge amount of computer games and websites. The situation was even worse when it came to performing profession-specific tasks. The Russian accounting package 1C, for example, still does not have an Apple version. In cases when nothing but 1C will do, Parallels Desktop is the only option. “I needed to use 1C and Microsoft Project,” said the head of system integrator TopS Business Integrator, Tahir Abaev, who has used Parallels Desktop on his Mac for the past year.
The whole world saw the Parallels icon on NASA monitors during the broadcast of the rover Curiosity mission in August 2012, and with an estimated 4.5 million people using the program, Dobrovolsky and Beloussov’s company controls about 90 percent of the global market in applications to run Windows-based programs on Apple computers. Last year, sales of the program, according to a source close to the company, were about $60 million, or approximately 25-30 percent of Parallels’ total business.
Dobrovolsky is the developer of virtual machine technology in Russia and was one of the c0-founders of Parallels in 1999, which was based on his research. The program first clicked with the creators of new technology, who needed to test projects simultaneously on computers running different browsers on different operating systems. In 2004, Dobrovolsky was able to interest entrepreneur Sergey Beloussov — co-founder of Runa Capital and co-owner of both Acronis and SWsoft — in the project. “It was a great team and many of those people are still with us today,” said Beloussov.
After completion of the project, a merger with SWsoft followed several years of reorganization. A controlling stake in Parallels, registered in Switzerland, went to Beloussov and his partner Ilya Zubarev. The founders of Parallels and the employees who received stock options in the company control 25 percent of the enterprise, while another quarter is split between the venture capital funds Bessemer, Insight Venture Partners, Intel Capital, Almaz Capital and Russia Partners.
According to Parallels, the main market for the product is the United States (40 percent), followed by Europe (40 percent) and Japan (20 percent). The Russian market accounts for only 1 percent of the company’s business. As a result, the Russian businessmen managed to remain at the top of the world market, despite the fact that nearly identical products — VMware’s Fusion and Apple’s Boot Camp — were released almost simultaneously with Parallels Desktop.
In January 2006, Apple announced a change to the PowerPC and an association with Intel that continues to this day. The company then introduced a new, flat-screen iMac. It was then that Dobrovolsky and Beloussov had the idea to modify Parallels so it could be sold to Mac owners. After a few months, Parallels came up with a solution in beta. Its two-month sales at $40 per copy paid for a $2 million investment in development.
Released on the market simultaneously with Parallels, Apple’s own Boot Camp was unable to oust Parallels from its leading position due to the fact that the Apple software required a restart each time a user wanted to switch from Mac OS to Windows and vice versa. Jobs praised the benefits of the Russian program, offering the Parallels package to Apple’s corporate clients. Parallels Desktop went on sale in June of that same year for $80; a price that has since remained unchanged.
Trouble, however, came knocking a year later, when VMware released a product similar to Parallels called Fusion. By that time, Parallels Desktop had already sold 600,000 copies, had released an upgrade and had no idea how expensive its underestimation of the role of marketing would turn out to be. The company had not spent a penny on advertising up to this point.
On its launch, VMware offered users to switch from Parallels for $50. Later, a CNET report came out saying that Parallels Desktop lost out in speed trials against Fusion. The Russian company was under attack on all fronts. At times the price of Fusion dropped to only $10, while online videos with “horror stories” about the problems of working with Macs on Parallels Desktop containing a voiceover saying: “If you want to avoid the same problems, use Fusion,” went viral By the end of 2008, according to NPD, VMware had taken half of Parallels of key U.S. market, which accounted for 80 percent of the global sales of Parallels Desktop.
As a result, Parallels launched a response campaign and tweaked the performance of the product. The counterattack began in 2009, with the release of the online video “I am on Mac,” which attracted users attention with a rap about the benefits of Macs. In two months, the video received one million hits and Yacov Zubarev, co-owner and president of Parallels, and Ilya’s brother, was certain that it was thanks to this video that the company managed to sell tens of thousands of copies. In 2009, VMware surveys by industry publications began to show that Parallels was outperforming them. MacTech, for example, found that Parallels Desktop was between 14 and 20 percent faster than Fusion and better suited to 3D gaming.
The second step in Parallels’ offensive was the establishment of a direct sales channel with the largest U.S. consumer electronics merchants such as the Apple Store, Best Buy, Fry’s and Staples. Prior to this, Parallels Desktop was available offline only through distributors, at times losing margins and control of customer feedback. Meanwhile, the marketing department at Parallels came up with a new strategy, releasing a boxed version of the product as Parallels Desktop Switch to Mac. In fact, it was the same program the company had been selling all along but included a USB cable and instructions on how to quickly transfer data from Windows-based computers to Macs. Switch to Mac accounted for no more than 10 percent of sales, but Parallels now had two coveted spots on the shelves of the Apple Store, quickly following suit at other retailers, which provided a greater presence for the company than VMware’s Fusion had. “We even tried to interest the sales staff at Best Buy in bonuses,” said Dobrovolsky. But managing the bonus program proved too unwieldy, so Parallels limited itself to training sales staff.
VMware attempted to instigate a price war with Parallels in 2010 by reducing the price of Fusion from $80 to $50 before launching the Fusion Family Pack, which allows users to buy one license for three computers located in a single home. Parallels did not follow suit, charging $130 after discounts for three licenses. “At that time, our sales did remained steady,” Dobrovolsky said happily.
Today, about 70 percent of purchases of Parallels Desktop are through bricks and mortar retail outlets. In 2012, VMware decided to turn away from retail space, claiming that since Fusion is a niche product, the company saw no reason to continue to sell it in stores. Dmitry Druzhinin, the former Marketing Director for Deep Apple which supplied Apple computers to IKEA Russia and the Russian Government, believes that VMware just “ran out of steam.” “Apparently, they did not achieve a return on investment and the budget for the promotion of the product ran out,” said Druzhinin.
Now users are saying on various forums that the two programs run at the same speed but that Fusion lacks functionality such as localization, the export of any document from Windows to PDF as well as remote applications for the iPad. Parallels, on the other hand, has extended the capabilities of such products. New developments through Parallels Access allow iPads to work with all of a user’s devices, whether a home or office computer or laptop, and is now outpacing the original Desktop in popularity. This may be because today, the owners of Parallels are spending “tens of millions” of dollars a year on advertising.
This story by Forbes Russia was first published in English by Software Russia.
