Cisco Systems, long known as the dominant supplier of switches and routers, has embarked on a multiyear journey to transform itself into a software and services powerhouse. The goal is to pivot away from reliance on one-time hardware sales and build a recurring revenue stream from subscriptions, security, and cloud-based offerings. According to Jack Gold, president of J.Gold Associates, Cisco’s strategy is to become a cloud service provider that not only sells equipment but also manages, secures, and optimizes the data traffic flowing through its devices.
Subscription revenue now accounts for nearly half of Cisco’s quarterly revenue
In its third-quarter earnings call in May, Cisco reported that 49% of total quarterly revenue now comes from subscriptions to software, security, and contract support. This marks a significant milestone for a company that historically earned most of its revenue from selling hardware. The shift is part of a broader industry trend where networking vendors are moving to as-a-service models to provide predictable income and deepen customer relationships.
Gold noted that Cisco’s massive installed base of enterprise and telecom customers gives it a unique vantage point. “Every packet that goes through a Cisco device can be analyzed and secured,” he said. This visibility positions Cisco to expand into advanced security offerings, especially as artificial intelligence introduces new challenges such as managing millions of AI agents.
Cisco targets AI agent security with Astrix acquisition
In May, Cisco announced plans to acquire Astrix Security for an undisclosed amount. Astrix specializes in identifying, managing, and securing AI agents and non-human identities, including machine-to-machine connections. The acquisition is aimed at a greenfield market: identity management for AI agents. While tools for human identities have existed for decades, managing the digital identities of potentially millions of AI agents remains largely untapped. Gold explained that many organizations are still figuring out how to approach this issue, making it a prime opportunity for Cisco to take a leadership role.
Astrix’s technology will be integrated into Cisco’s broader security portfolio, which already includes products for network security, endpoint security, and cloud security. By adding AI agent security, Cisco hopes to offer a comprehensive solution for the next wave of cyber threats.
Platform integration: The Cloud Control scheme
A key challenge for Cisco has been the fragmentation of its product portfolio. Over the years, the company has acquired dozens of companies, resulting in a collection of components that are not always fully integrated at customer sites. Gold pointed out that this is Cisco’s greatest weakness. “They still have a lot of components that are not fully integrated. That’s why they are trying to build an overarching cloud management console.”
To address this, Cisco recently rolled out Cloud Control, a management platform that promises a single plane of glass for networking, security, compute, observability, and collaboration. Cloud Control aims to simplify operations for enterprise customers who have historically had to use separate consoles for different functions. However, Gold cautioned that full integration might be problematic for customers who still have individual components from Cisco or other vendors. “If they have products from other networking vendors, getting that overall integration in place will be tough,” he added.
Competitive landscape and Cisco’s advantages
Cisco’s transformation does not happen in a vacuum. Rivals such as Hewlett Packard Enterprise and Palo Alto Networks are pursuing similar platformization strategies. Cloud hyperscalers like Amazon Web Services, Microsoft, and Google are also bundling security and identity solutions with their infrastructure. Despite these threats, Gold believes Cisco retains a significant edge due to its sheer scale and reach. “They’re the 800-pound gorilla in this space,” he said.
Cisco’s partnerships span enterprises, hyperscalers, and semiconductor firms. Its extensive installed base of networking equipment provides a foundation that competitors cannot easily replicate. Even with smaller product lines like the UCS server business and Webex, Gold argues that Cisco’s overall market position remains formidable.
Looking ahead: Network fabric operator and beyond
Cisco’s long-term ambition is to become more than just a hardware provider. The company wants to act as a comprehensive network fabric operator, overseeing and securing the flow of data and AI-driven activity across complex environments. This includes managing everything from on-premises data centers to public clouds and edge locations.
With the rise of AI, network demands are growing exponentially. Cisco is positioning its silicon, software, and management platforms to handle the increased bandwidth and low-latency requirements. The company’s recent announcements around 102.4 Tbps switch silicon and partnerships with AMD and others demonstrate its commitment to the AI infrastructure market.
However, Cisco must navigate the challenge of integrating its own acquisitions and convincing customers to adopt a unified platform. The success of Cloud Control will be a bellwether for whether Cisco can truly become the software monster it aspires to be.
Source:Network World News