Cisco has long been synonymous with networking hardware—routers, switches, and the physical underpinnings of the internet. But over the past several years, the company has been executing a deliberate, multiyear pivot toward software and services. The goal is nothing less than to become a dominant software platform provider in an era defined by cloud computing, artificial intelligence, and heightened security demands.

In its most recent quarterly earnings call, Cisco reported that 49% of total quarterly revenue now comes from subscriptions to software, security, and contract support rather than one-time hardware purchases. This milestone underscores the success of a strategy that has involved aggressive acquisitions, internal product development, and a rethinking of the company’s relationship with customers.

The subscription transformation

Cisco’s shift is not unique in the tech industry. Hardware incumbents from IBM to Hewlett Packard Enterprise have pursued similar transitions, recognizing that recurring revenue streams provide more predictable income and deeper customer engagement. However, Cisco’s scale and installed base give it a distinct advantage. The company ships millions of networking devices each year, providing a natural foundation for upselling software subscriptions for security, analytics, and management.

Analyst Jack Gold of J.Gold Associates notes that Cisco’s strategy aims to move beyond the one-time sale model. “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. By embedding software and services into its hardware and offering them on a subscription basis, Cisco locks in customers more deeply and creates a stickier ecosystem.

Security as a growth engine

A central pillar of Cisco’s software strategy is security. With its equipment deployed across enterprise networks, telecom infrastructure, and data centers, Cisco has a unique vantage point into network traffic. This visibility allows the company to offer advanced security solutions that detect and respond to threats in real time. As artificial intelligence introduces new attack surfaces and complexity, Cisco is positioning itself as a critical defender.

One particularly promising area is identity management for AI agents. While identity and access management for human users is a mature market, managing the identities of millions of autonomous software agents is a largely untapped opportunity. “This is a greenfield environment,” said Gold, pointing out that many organizations are unsure how to handle AI agent identities securely.

To bolster its capabilities in this domain, Cisco announced in May the acquisition of Astrix Security for an undisclosed sum. Astrix specializes in identifying, managing, and securing AI agents and non-human identities, such as machine-to-machine connections. The acquisition is a clear signal of Cisco’s intent to be the go-to provider for AI-driven security as enterprises deploy more autonomous systems.

Unifying the portfolio with Cloud Control

Cisco’s expansive product portfolio—spanning networking, security, compute, collaboration, and observability—has historically operated in silos. Customers often managed separate components with different consoles, leading to complexity and inefficiency. To address this, Cisco recently launched Cloud Control, an overarching management platform that provides a single plane for overseeing networking, security, compute, observability, and collaboration.

Cloud Control is a critical part of Cisco’s platformization strategy, which aims to integrate its disparate offerings into a cohesive whole. Gold noted that integration remains one of Cisco’s biggest challenges. “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.

Despite these challenges, Cloud Control represents a significant step forward. It leverages Cisco’s vast telemetry data and AI analytics to provide actionable insights across the entire infrastructure. For customers fully committed to Cisco, the platform can reduce operational overhead and improve security posture.

Competition and market position

Cisco is not alone in pursuing platformization. Hewlett Packard Enterprise has its own software-defined networking and security platform via the Aruba acquisition, while Palo Alto Networks is extending its security offerings into networking. Cloud providers like Amazon Web Services, Microsoft Azure, and Google Cloud offer integrated security and identity solutions tied to their cloud ecosystems.

However, Cisco’s strength lies in its enormous installed base and its relationships across enterprises, telecom carriers, and hyperscalers. The company also partners with major semiconductor firms, giving it influence over chip design for networking and security. “They’re the 800-pound gorilla in this space,” Gold said.

Even as Cisco sheds some smaller hardware lines, such as its UCS server business and the struggling Webex collaboration suite, it remains a formidable force. The company’s financial resources allow it to make strategic acquisitions like Astrix and invest in building Cloud Control.

AI and the future of networking

Looking ahead, Cisco’s ambition is to become more than a hardware or software 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 environments. This vision includes managing identities for AI agents, securing machine-to-machine communications, and ensuring that AI workloads have the necessary network performance and security.

Cisco’s investments in AI are not just about security. The company is embedding AI capabilities into its networking products to enable predictive analytics, automated troubleshooting, and dynamic optimization. For example, Cisco’s AI-powered analytics can detect anomalies in network traffic before they become outages, reducing downtime and improving user experience.

The network itself is becoming more software-defined, and Cisco is at the forefront of this transformation. Its intent-based networking solutions, such as Cisco DNA Center, use AI to translate business intent into network policies. These products are now being augmented with cloud management and AI agent support.

Historical context and evolution

Cisco’s software pivot did not happen overnight. The company began acquiring software companies more aggressively in the mid-2010s, starting with cloud security firm OpenDNS in 2015 for $635 million, followed by application performance management firm AppDynamics in 2017 for $3.7 billion. These acquisitions laid the groundwork for Cisco’s security and observability portfolios.

In 2021, Cisco completed its largest-ever deal, acquiring software analytics provider Splunk for $28 billion. That acquisition was a clear statement of intent: Cisco wanted to dominate the data and observability market, which is critical for both security and IT operations. Splunk’s platform ingests and analyzes machine data, providing visibility across the entire stack—an essential capability for modern enterprises.

The Splunk integration is ongoing, but it has already contributed to Cisco’s subscription revenue growth. Splunk’s cloud-based offerings align perfectly with Cisco’s shift to recurring revenue. The combination of Splunk’s analytics, Cisco’s networking hardware, and AppDynamics’ application performance monitoring creates a powerful observability platform that few competitors can match.

Not all of Cisco’s software bets have paid off. The company’s Webex collaboration suite has struggled to compete with Zoom and Microsoft Teams, even after significant investments. Similarly, Cisco’s UCS server business faces intense competition from Dell, HPE, and cloud providers. Gold suggests that these areas are less critical to Cisco’s future than its core networking, security, and observability businesses.

The role of subscriptions and partnerships

Cisco’s subscription model is foundational to its software strategy. The company now offers almost all its software products on a subscription basis, including Cisco SecureX (security), Cisco DNA (networking), and AppDynamics (observability). Hardware devices can also be bundled with software subscriptions for a complete solution.

Partnerships remain a key element. Cisco works closely with major cloud providers to ensure its software runs seamlessly across AWS, Azure, and Google Cloud. It also partners with telecom companies to deliver managed networking services. These relationships expand Cisco’s reach without requiring it to compete directly with cloud giants.

Gold emphasizes that Cisco’s advantage is its ability to offer a complete stack. “They can give you the network, security, and observability all together,” he said. “That’s hard for any single vendor to match, especially when you consider their global support and channel ecosystem.”

As enterprises grapple with digital transformation, AI adoption, and increasing cyber threats, Cisco is positioning itself as the trusted partner that can secure and manage the entire network fabric. The company’s software strategy is still a work in progress, but the trajectory is clear: Cisco is determined to evolve from a hardware giant into a software and services powerhouse.

Source: Network World News