For years, Cisco was synonymous with switches and routers—the hardware that powered the internet and corporate networks. But the California-based company has long been executing an ambitious strategy: becoming a software and services giant, with cloud, security, and artificial intelligence as its pillars. This is not just about diversifying revenue, but about redefining its role in a market where value is shifting from physical equipment to subscriptions and integrated platforms.

The shift to subscriptions: over 49% of revenue is already recurring

Cisco remains a dominant hardware provider, but its business model is changing radically. According to Jack Gold, president of J.Gold Associates, the company has invested heavily in software to create recurring revenue streams. In its fiscal third-quarter 2024 earnings report, Cisco revealed that 49% of its total quarterly revenue came from subscriptions to software, security, and support contracts, rather than one-time purchases. “What they are trying to do is reach a point where, instead of just selling a server or a switch and ending the relationship, they basically become a cloud service provider,” Gold explains.

This shift is significant. For businesses, it means moving from a capital expenditure (CAPEX) model to an operational expenditure (OPEX) one, with predictable costs and continuous updates. For Cisco, it means greater customer loyalty and upselling opportunities, especially in areas like cloud security and network management.

Security and AI: the new battleground

At the core of Cisco's strategy is its growing focus on security and network visibility. With its equipment deployed in enterprise, telecom, and service provider networks, Cisco has a unique vantage point over data traffic. Gold notes that this visibility allows expansion into advanced security offerings, especially as artificial intelligence introduces new challenges.

An emerging opportunity is identity management for AI agents. While identity tools for human users have existed for decades, managing identities for potentially millions of AI agents represents an untapped market. “It's new ground,” Gold says, adding that many organizations still don't know how to address this challenge. In May, Cisco announced plans to acquire Astrix Security, a firm specializing in protecting non-human identities and machine-to-machine connections. This acquisition strengthens its security portfolio for AI agents, a topic we cover in our article “The manual model is broken”: when AI agents write in production.

Platformization: the big challenge of integrating silos

Cisco is also working to unify its existing portfolio into integrated platforms, which Gold says is its biggest challenge. “They still have many components that are not fully integrated into customer environments. That's why they are trying to build a global cloud management console. But it can be problematic for many customers who have been using individual components for years to achieve full integration, especially if they also have network products from other vendors,” he points out.

Just this month, Cisco launched a new comprehensive management scheme called Cloud Control, which promises a single management plane covering networking, security, computing, observability, and collaboration. This unified platform aims to simplify the administration of hybrid and multicloud environments, a recurring theme in our analyses on business process automation.

Fierce competition, but Cisco has an ace up its sleeve

Competition remains strong. Rivals like Hewlett Packard Enterprise and Palo Alto Networks are pursuing similar 'platformization' strategies, while cloud providers like Amazon Web Services, Microsoft, and Google offer security and identity solutions tied to their own infrastructures. However, Cisco's strength lies in its vast installed base and its partnerships with enterprises, hyperscalers, and semiconductor manufacturers, according to Gold. “They are the 800-pound gorilla in this space,” he says.

Despite some smaller product lines, such as its UCS server business and Webex, Gold believes Cisco maintains a significant advantage due to its scale and reach. This privileged position allows it to address challenges like implementing generative AI in corporate workflows, where integration with existing infrastructure is key.

The future: more than hardware, a comprehensive network operator

Looking ahead, Cisco's ambition is to become more than just a hardware provider. The company aims to act as a comprehensive network operator, overseeing and securing data flow and AI-driven activity in complex environments. For IT professionals, this means preparing for an ecosystem where security, automation, and unified management will become increasingly critical. At ForgeNEX, we have seen how companies adopting integrated platforms reduce operational costs and improve resilience, as in our success story on hardening and maintaining Linux servers.

Cisco's transformation is not just a corporate story; it reflects where the industry is heading: toward a model where software, subscription, and artificial intelligence define value. And Cisco, with its massive installed base and commitment to platformization, is determined to lead that change.

Original source: ComputerWorld. Analysis and adaptation by ForgeNEX.