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Windows on the Mac changes everything

The kind of software sold by the formidable Parallels is transforming computing and challenging Steve Jobs, says Fortune's David Kirkpatrick.

By David Kirkpatrick, Fortune senior editor

NEW YORK (Fortune) -- The lines between the Mac OS and Windows are starting to blur. And that portends major changes going forward in the world of PCs. At MacWorld, a little company called Parallels won awards for the latest version of its hit product, which enables you to run both operating systems at the same time on a Macintosh. It's a major breakthrough.

While the last version of Parallels allowed you to run both operating systems at once, it still required you to switch back and forth between the two. Now, however, Parallels' Coherence product, which the company says will ship by mid-February, lets you keep multiple windows open on your desktop, just as you normally would, running a variety of applications. Except now you can switch between windows running Windows and Mac applications just as if they were all Mac. (Parallels costs $79, though Mac owners also have to buy a copy of Windows to use it.)

This is the fruit of recent major advances on x86-based computers in the technique called virtualization, a technique for isolating aspects of computing performance - sometimes hardware and sometimes software - so multiple functions can be underway simultaneously, while reducing the risk they will interfere with one another.

The tectonics of virtualization are shifting. It turns out that Parallels is not such a little company after all. About three years ago it was quietly purchased by an enterprise-focused virtualization company called SWsoft, a fact that has never been publicly disclosed until now.

SWsoft and its Parallels subsidiary are both Russian-American operations. SWsoft CEO Serguei Beloussov, based in Virginia, calls the shots for programmers who are based in Moscow. Parallels employed only seven when SWsoft bought it, but today has 100 people, mostly in Russian R&D.

Meanwhile, the gorilla of virtualization, VMware, is well along with its own product for the Mac, one that aims to do many of the same things as Parallels. VMware says that product should ship by summer.

When Apple (Charts) switched a year ago to using the same standard x86 processors that other PC companies use, it opened the door to all this progress on virtualization. Apple CEO Steve Jobs has always been adamant about controlling the hardware on which his software operates, but because of Apple's switch to x86 his ability to maintain that control is now diminishing.

Both Parallels' and VMware's products virtualize x86 hardware for any operating system, but the excitement for desktops has been almost entirely about what it means for the Mac. That's because Mac OS remains the easiest and most enjoyable software to use day in and day out. Microsoft's (Charts) new Vista, despite being a major advance, doesn't really change that, as many reviewers including Walt Mossberg in Thursday's Wall Street Journal have recently reiterated.

Until now it hasn't been possible to for most corporate users to switch to the Mac OS because they needed applications that only ran on Windows, notably Microsoft Outlook. But that problem is melting away. Beloussov says Parallels is now talking to a number of big companies about making the switch.

VMware's CEO Diane Greene told me last week that her company's existing x86 desktop product is already being used by some to run Mac OS on computers from Dell (Charts), Hewlett-Packard (Charts) and others, though this is not intentional on VMware's part.

SWsoft's Beloussov says that this spring, Parallels will upgrade its software further, in a way that by coincidence will make it easier to run Mac OS on a non-Apple computer. He also insists that is not deliberate, but just a consequence of the nature of the technology, especially now that Intel (Charts) builds virtualization technology into its chips.

Both companies' products specifically aimed at the Mac will remain self-consciously crippled in order to satisfy Apple's demands that users not be encouraged to put Mac OS on a non-Apple machine. But pressures seem to be building in a way that Apple and Jobs will increasingly have a hard time controlling.

Greene says one reason VMware's Mac product is delayed is that it was so time-consuming to get Apple's cooperation and blessing. "We were trying to do it the way they wanted to, but in hindsight we should have just gone ahead," she says. "I wonder what Steve Jobs is going to do, because there is so much pressure to run Mac OS on non-Macs. There's no technical reason not to do it. He's so proprietary about everything, yet it could be a very strategic move for him to make." Beloussov, for his part, agrees.

In June 2005 I broke the news that Michael Dell wanted to ship Mac OS on Dell machines. Last week in an e-mail he confirmed to me that his thinking hasn't changed. "We would offer MacOS," he wrote, "if customers wanted it and Apple would license it on reasonable terms...It's Apple's decision."

The pressures are building on Steve Jobs. Eventually, as virtualization improves, it will prove harder and harder not to accede to Dell and others who want to sell his software in different ways.

Meanwhile, SWsoft has several big changes up its sleeve for the near future. For one, Parallels, which unlike SWsoft's enterprise product uses the same hardware-based virtualization approach as VMware does, will enter the server market by this summer. It will focus on small companies and departments in large ones, whereas VMware sells to just about every big company in the world. SWsoft's Beloussov makes no bones about his longterm intention to go head-to-head with VMware. Another planned change is the integration of SWsoft's management tools with Parallels. One of the most profitable realms in virtualization is increasingly the tools to keep track of it all.

Peter Lewis reviews Vista for the current issue of Fortune -- see his column online on Jan. 24.

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