Cisco, long known as the dominant force in networking hardware, is in the midst of a strategic transformation that aims to reshape its identity. The company is shifting from a reliance on one-time sales of switches and routers toward a recurring revenue model centered on software, security, and services. This evolution, spanning several years, is designed to position Cisco as a central player in cloud computing, cybersecurity, and AI-driven networking.
In its Q3 earnings call in May, Cisco reported that 49% of total quarterly revenue now comes from subscriptions to software, security, and contract support. This is a notable milestone in a journey that began with acquisitions like Meraki (cloud-managed networking) and continued with large purchases such as Splunk (observability and security). The goal, according to industry analysts, is to transform Cisco into a cloud service provider rather than a mere hardware seller. “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,” said Jack Gold, president of J.Gold Associates.
Security and visibility as core pillars
At the heart of Cisco’s new strategy is a growing emphasis on security and network visibility. The company’s equipment is deeply embedded in enterprise, telecom, and service provider networks, giving Cisco a unique vantage point into data traffic. This visibility allows the company to expand into advanced security offerings, especially as artificial intelligence introduces new challenges and opportunities.
One emerging area is identity management for AI agents. While tools for managing human identities have existed for decades, the rise of AI agents—autonomous software entities that perform tasks—presents a largely untapped market. “This is a greenfield environment,” Gold noted, adding that many organizations are still uncertain how to approach the issue. To address this, Cisco announced in May its plans to acquire Astrix Security for an undisclosed amount. Astrix specializes in identifying, managing, and securing AI agents and non-human identities, such as machine-to-machine connections. This acquisition bolsters Cisco’s security portfolio and signals its intent to lead in the AI security space.
Platform unification with Cloud Control
Cisco is also working to unify its diverse portfolio of products—ranging from networking and security to compute and collaboration—into integrated platforms. This has been a long-standing 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,” Gold explained.
In response, Cisco recently rolled out Cloud Control, a management scheme that promises a single management plane spanning networking, security, compute, observability, and collaboration. This move aims to simplify operations for customers and create a more cohesive ecosystem, enabling Cisco to cross-sell its growing suite of software offerings.
Competitive landscape
Cisco’s transformation does not occur in a vacuum. Competitors such as Hewlett Packard Enterprise (via its Aruba networking division) and Palo Alto Networks are pursuing similar platformization strategies. Cloud providers like Amazon Web Services, Microsoft, and Google offer security and identity solutions tightly integrated with their own infrastructures. However, Cisco’s extensive installed base and long-standing partnerships across enterprises, hyperscalers, and semiconductor firms give it a distinct advantage. “They’re the 800-pound gorilla in this space,” Gold said.
Despite some smaller product lines—such as its UCS server business and the Webex collaboration platform—Cisco maintains significant scale and reach. The company’s dominance in campus and data center networking provides a foundation for upsells into security, observability, and AI-driven analytics.
Beyond hardware: The network fabric vision
Cisco’s ambition extends beyond becoming a software vendor. The company aims to act as a comprehensive network fabric operator, overseeing and securing the flow of data and AI-driven activity across complex environments. This vision leverages Cisco’s deep integration with network infrastructure to provide end-to-end visibility and control. As AI workloads proliferate, the need for reliable, secure, and observable networks becomes paramount. Cisco’s strategy positions it to capture value not just from hardware sales but from ongoing subscriptions for security, management, and analytics.
Historical context is important. Cisco began its software push over a decade ago with initiatives like the Application Centric Infrastructure (ACI) for software-defined networking. More recent acquisitions include Splunk for $28 billion, ThousandEyes for network intelligence, and Duo Security for zero-trust access. Each acquisition fills a piece of the puzzle, but integration remains a work in progress. Cloud Control represents an attempt to bring these pieces together under a unified umbrella.
Looking ahead, Cisco’s growth will likely hinge on its ability to execute this integration while fending off competition from both traditional networking rivals and hyperscale cloud providers. The shift to 49% subscription revenue indicates progress, but the company must continue to innovate in areas like AI agent security and network observability to maintain its leadership. With a vast installed base and a clear strategic direction, Cisco is well-positioned to evolve from a hardware giant into a software powerhouse, though the road ahead will require careful navigation of technical and market challenges.
Source: Network World News