Cisco Systems, long known as the dominant player in networking hardware—switches, routers, and the backbone of the internet—is in the midst of a profound transformation. The company is pivoting from a hardware-centric business model toward a software and services strategy, positioning itself as a central player in cloud computing, security, and AI-driven networking. This shift is not just a tactical response to market trends but a strategic redefinition of what Cisco aims to be: a comprehensive software and security powerhouse.

The Shift to Software and Subscriptions

For decades, Cisco’s revenue model was built on selling physical networking gear. Enterprises and service providers would buy routers and switches, and Cisco’s earnings would follow. However, the rise of cloud computing, software-defined networking (SDN), and the need for recurring revenue streams have forced the company to rethink its approach. Under CEO Chuck Robbins, who took the helm in 2015, Cisco began aggressively acquiring software companies and transitioning its product lines to subscription-based models.

In its fiscal third-quarter earnings call in May 2026, Cisco revealed that 49% of its total quarterly revenue now comes from subscriptions—spanning software, security, and contract support—rather than one-time hardware purchases. This milestone underscores the success of its strategy, even as hardware sales remain a significant part of the business. Jack Gold, president of J.Gold Associates, noted that Cisco’s goal is to become more than just a vendor that sells you a switch and walks away. “They are trying to get to a place where they become basically a cloud service provider,” Gold said.

The subscription model provides Cisco with predictable, recurring revenue and deeper customer relationships. It also aligns with industry trends where enterprises prefer operational expenditure (OpEx) over capital expenditure (CapEx) for IT infrastructure. Cisco’s software portfolio now includes offerings like Cisco DNA for networking, Meraki for cloud-managed IT, and AppDynamics for application performance monitoring.

Security and AI Agent Identity

A key pillar of Cisco’s transformation is its growing focus on security and network visibility. Because Cisco equipment is embedded across enterprise, telecom, and service provider networks, the company has a unique vantage point into data traffic flows. This visibility allows it to expand into advanced security offerings, particularly as artificial intelligence introduces new challenges in identity management and threat detection.

One 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—bots, machine-to-machine connections, and autonomous scripts—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 2026, Cisco announced plans to acquire Astrix Security for an undisclosed amount. Astrix specializes in a platform that identifies, manages, and secures AI agents and non-human identities. This acquisition is a clear signal that Cisco intends to be a leader in this new space, which is critical as enterprises adopt more AI-driven automation and orchestration.

Cisco’s security portfolio already includes products like Cisco Secure Firewall, Cisco Umbrella for DNS security, and Duo Security for multi-factor authentication. By adding Astrix, Cisco aims to offer a comprehensive identity security solution that covers both human and machine entities, providing a unified approach to zero trust.

Platform Integration with Cloud Control

Cisco’s biggest challenge, however, may be integrating its vast array of products into a seamless, unified platform. Over the years, the company has acquired dozens of companies—from Meraki and AppDynamics to ThousandEyes and Viptela—each with its own management interface. Customers often have to juggle multiple consoles and dashboards, which reduces the value of Cisco’s ecosystem.

To address this, Cisco launched Cloud Control in mid-2026, a overarching management scheme that promises a single plane for managing networking, security, compute, observability, and collaboration. According to Gold, this is the company’s greatest ambition and also its most difficult task. “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.

Cloud Control aims to provide a unified dashboard where IT teams can configure and monitor all Cisco devices and services from a single pane. If successful, it could strengthen customer lock-in and make it easier for enterprises to adopt Cisco’s entire software stack. However, integration with third-party products remains a challenge that Cisco must address to fully realize its platform vision.

Competition and Cisco’s Advantages

Cisco is not alone in pursuing platformization. Rivals like Hewlett Packard Enterprise (HPE) and Palo Alto Networks are also building integrated product suites. HPE, through its Aruba networking division and acquisition of Juniper Networks, offers a similar networking and security platform. Palo Alto Networks has expanded from firewalls to a broad security platform with cloud and AI capabilities. Meanwhile, cloud giants like Amazon Web Services (AWS), Microsoft, and Google offer security and identity solutions tightly integrated with their own infrastructures.

Despite this competition, Cisco retains a significant advantage due to its scale, installed base, and partnerships. Cisco's gear is present in virtually every large enterprise, data center, and telecom network. This gives it visibility and reach that rivals struggle to match. Gold described Cisco as “the 800-pound gorilla in this space.”

Additionally, Cisco has deep relationships with hyperscalers and semiconductor companies. Its collaboration with chipmakers like Broadcom and Intel ensures its hardware stays optimized for emerging workloads like AI and high-performance computing. Cisco also benefits from its vast partner ecosystem, which includes system integrators, value-added resellers, and managed service providers.

Future Outlook

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, hybrid environments. This includes everything from on-premises data centers to multiple public clouds and edge locations.

The company is also betting heavily on AI. Cisco recently unveiled a series of AI-ready networking solutions designed to support AI workloads, including high-speed switches and optical interconnects. It is also embedding AI into its own products for predictive analytics, anomaly detection, and automated remediation. In the security arena, AI helps analyze vast amounts of traffic data to identify threats in real time.

While some of Cisco’s smaller product lines, such as its Unified Computing System (UCS) server business and Webex collaboration platform, face headwinds, the company’s core networking and security segments remain strong. The shift to software and subscriptions is providing financial stability and opening new revenue opportunities in identity management, cloud management, and AI security.

Ultimately, Cisco’s transformation from a hardware company to a software and services giant is a multi-year journey that still has miles to go. But with nearly half of its revenue now recurring, a clear focus on security and AI, and a unified management platform in the works, Cisco is positioning itself as a central player in the next era of enterprise IT.

Source: Network World News