Is Surgient’s success causing them to exit the hosting business?

An article in the Austin Business Journal (ABJ) spoke of the recent success that Surgient, a virtual lab management software company, has been having as of late. In fact, the article claimed that Surgient could be well on its way to either acquisition or IPO — a virtualization journey that has seen the company grow over the past five years.

Surgient is not alone in this growing market space. In fact, the company has had competition for quite some time from its partner, VMware, with its Lab Manager product, as well as from VMLogix, who also has a competing product called LabManager.

And like most growing markets, new players oftentimes join in the fun by trying to get their own slice of the pie. In 2007, the virtual lab automation market witnessed a new entry from a company called Skytap, which provides a hosted service in the cloud that combines the virtual infrastructure with a software-as-a-service (SaaS) approach.

After the Austin Business Journal article posted, Skytap reported on its company blog that the article seemed to indicate that Surgient was exiting its hosted service business. And it added that “trying to compete in both a packaged software and a ‘SaaS’ type business is rarely a great business strategy – each requires a different approach for software delivery, sales model and support.”

Curious, as I had just read the original ABJ article and discussed it on my InfoWorld Virtualization Report podcast — I didn’t quite get the same message. Only a month earlier, I spoke with Surgient executives but never got the impression that the company was ending its hosted business in favor of its software license, packaged software delivery method.

After contacting Dave Malcolm, Surgient’s Chief Technology Officer, I found out that the company has no intention of exiting the hosted business. Malcolm said that the company plans on continuing to provide its customers with the option of Surgient’s hosting solution or its on-premise installation of Surgient software.

Malcolm added, “We are seeing significant traction and growth on both the licensing and hosted sides, thus our dramatic growth over the last couple of years. Because companies are rapidly moving to solve problems with virtualization and lab management, companies are coming to us because we give them a quick entry point with a hosted option, then oftentimes that leads to them licensing the product.”

So then what does Surgient say about the claim that trying to compete in both a packaged software and a hosted business is rarely a great business strategy?

Malcolm said he would dispute the claim that it is too difficult to support both business models. He said Surgient has mastered both business models effectively, and that they have reference customers in each camp to support it. In the end, he said they just allow their customers to purchase Surgient’s Virtual Automation Platform in whatever form they choose — hosted or on-premise. And it is this flexibility of allowing customers to buy how they need to buy — subscription only, license and hosting, or license for on-site use — that has helped Surgient get where they are today.