Cisco Systems, long known as the dominant force in networking hardware, is executing a multi-year transformation to become a software and services powerhouse. The company’s strategy centers on shifting its business model from one-time hardware sales to recurring subscription revenue, while simultaneously expanding into adjacent markets such as security, observability, and AI-driven networking. This pivot is not just about financial metrics—it reflects a fundamental redefinition of Cisco’s role in the enterprise technology stack.

The shift to recurring revenue

In its fiscal third-quarter earnings call held in May, Cisco reported that 49% of its total quarterly revenue now comes from subscriptions to software, security, and contract support rather than from one-time purchases. That figure marks a significant milestone in the company’s long-term goal of becoming a cloud-service-like business. According to Jack Gold, president of J.Gold Associates, Cisco aims to move beyond simply selling switches and routers. “What they are trying to do is get to a place where rather than just sell you a server or network switch and I’m done, is make themselves into basically a cloud service provider,” Gold explained.

This revenue mix shift has been years in the making. Cisco has aggressively acquired software companies—such as AppDynamics (observability), ThousandEyes (network intelligence), and Duo Security (zero-trust access)—and integrated them into its portfolio. The company has also invested heavily in developing its own software platforms, including Cisco DNA Center for network management and Cisco SecureX for unified security.

Security and AI: The next frontier

At the core of Cisco’s software strategy is a growing focus on security and network visibility. Because Cisco equipment is embedded in enterprise, telecom, and service provider networks, the company possesses a unique vantage point into data traffic flows. Gold noted that this visibility allows Cisco to expand into advanced security offerings, particularly as artificial intelligence introduces new attack surfaces and management challenges.

One emerging opportunity is identity management for AI agents. While identity and access management (IAM) tools for human users have existed for decades, managing identities for potentially millions of AI agents—such as bots, machine learning models, and automated workflows—represents a largely untapped market. “This is a greenfield environment,” Gold said, adding that many organizations are still uncertain how to approach the issue.

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 bolsters Cisco’s ability to offer a comprehensive security portfolio that covers both human and non-human entities. It also positions Cisco to address the growing concern over AI supply chain risks and the need for continuous verification of automated actors.

Platform unification: Cloud Control

Cisco is also working to unify its diverse product lines into integrated platforms. Gold stated that this cohesion is Cisco’s greatest challenge. “They still have a lot of ‘components’ that are not fully integrated at their customer sites. That’s why they are trying to build an overarching cloud management console. But it might be problematic for many customers who still have individual components they’ve had in place for years to fully get the overall integration in place, especially if they also have other vendor’s networking products in place,” he said.

To address this, Cisco rolled out Cloud Control in June—a management scheme that promises a single pane of glass spanning networking, security, compute, observability, and collaboration. Cloud Control is designed to give IT teams a unified view of their entire infrastructure, simplifying operations and enabling faster troubleshooting. The platform leverages Cisco’s existing telemetry and AI-powered analytics to provide proactive recommendations.

This move mirrors similar “platformization” efforts by rivals such as Hewlett Packard Enterprise (with its Aruba Central) and Palo Alto Networks (with its Prisma cloud platform). Even cloud hyperscalers like Amazon Web Services, Microsoft Azure, and Google Cloud are offering integrated security and identity solutions tied to their infrastructures. However, Cisco’s strength lies in its massive installed base and deep partnerships across enterprises, service providers, and hyperscalers.

Competitors and market position

Despite these competitive pressures, Gold believes Cisco retains a significant advantage due to its scale and reach. “They’re the 800-pound gorilla in this space,” he said. Cisco’s hardware business—including switches, routers, wireless access points, and the UCS server line—remains a cash cow that funds its software ambitions. The company also maintains strong relationships with chipmakers, such as its partnership with Intel and its own Silicon One processor family, which gives it control over both hardware and software innovation.

One area of vulnerability is Cisco’s Webex collaboration platform, which faces stiff competition from Microsoft Teams, Zoom, and Google Meet. Similarly, the UCS server business has seen declining market share as enterprises increasingly adopt hyperconverged infrastructure and public cloud. Nevertheless, Cisco continues to invest in these products, hoping to integrate them into its broader platform story.

Looking ahead, Cisco’s ambition is to become more than a hardware provider. The company aims to act as a comprehensive network fabric operator—effectively overseeing and securing the flow of data and AI-driven activity across complex, multi-cloud environments. This vision positions Cisco as a central orchestrator in the digital transformation era, where network, security, and application performance are inseparable.

In summary, Cisco’s transformation is well underway, driven by strategic acquisitions, internal development, and a relentless focus on recurring revenue. While challenges remain—particularly around product integration and competition—the company’s installed base and breadth of offerings give it a strong foundation. As AI and cloud continue to reshape enterprise IT, Cisco’s pivot to software and services may define its next chapter.

Source: Network World News