Cisco Systems, long synonymous with routers and switches, is in the midst of a profound transformation. The company is shifting from a hardware-centric business model toward a broader software and services strategy, aiming to position itself as a central player in cloud computing, security, and AI-driven networking. This pivot is not a sudden reaction but a years-long evolution that reflects the changing demands of enterprise IT and the rise of software-defined everything.

From Hardware to Recurring Revenue

For decades, Cisco dominated the networking hardware market, selling switches, routers, and other equipment to enterprises, service providers, and telecoms. However, the rise of cloud computing, virtualization, and software-defined networking (SDN) forced the company to rethink its approach. In its most recent quarterly earnings call in May 2026, Cisco revealed that 49% of total quarterly revenue now comes from subscriptions to software, security, and contract support—rather than one-time hardware purchases. This is a milestone that underscores the success of its strategic shift.

According to Jack Gold, president of J.Gold Associates, Cisco is “trying to 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.” This means offering ongoing services, updates, and management capabilities that generate predictable, recurring revenue.

The Core of Cisco’s Software Strategy: Security and Visibility

At the heart of Cisco’s software strategy is its growing focus on security and network observability. With its equipment embedded across enterprise, telecom, and service provider networks, Cisco has a unique vantage point into data traffic. This visibility allows the company to expand into advanced security offerings, particularly as artificial intelligence introduces new challenges and opportunities.

One emerging opportunity is identity management for AI agents. While identity tools for human users have been around for decades, managing identities for potentially millions of AI agents represents a largely untapped market. “This is a greenfield environment,” Gold noted, adding that many organizations are still uncertain how to approach the issue.

In May, Cisco announced its intent to acquire Astrix Security for an undisclosed amount to bolster its AI agent security portfolio. Astrix is known for its security platform that specializes in identifying, managing, and securing AI agents and non-human identities, such as machine-to-machine connections. This acquisition fits neatly into Cisco’s broader strategy of embedding security into the network fabric.

Unifying the Portfolio: Cloud Control

Cisco has historically sold a wide range of products—from networking gear to collaboration tools, compute servers, and security appliances. However, many of these components have operated as silos. Gold noted that “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.”

In June 2026, Cisco launched Cloud Control, a unified management platform that promises a single pane of glass for networking, security, compute, observability, and collaboration. This is a direct response to customer demand for simplified operations and reduced complexity. Cloud Control aims to stitch together Cisco’s sprawling product line into a cohesive fabric, allowing IT teams to manage their entire infrastructure from one interface.

However, Gold cautioned that this integration could be problematic for many customers who still have individual components they’ve had in place for years, especially if they also have other vendors’ networking products. Full integration across a heterogeneous environment remains a challenge, but Cisco’s ambition is clear: become the central orchestrator of enterprise networks.

Competitive Landscape

Cisco is not alone in pursuing a platform strategy. Rivals like Hewlett Packard Enterprise (HPE) and Palo Alto Networks are moving in similar directions, bundling hardware and software into integrated solutions. Meanwhile, cloud providers such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud offer their own security, identity, and networking solutions tightly integrated with their infrastructures.

Despite this competition, Cisco retains significant advantages. The company has an extensive installed base that spans virtually every industry, as well as deep partnerships with hyperscalers and semiconductor firms. “They’re the 800-pound gorilla in this space,” Gold said. This scale gives Cisco leverage in negotiations, distribution, and the ability to influence industry standards.

Moreover, Cisco’s network visibility—being able to see traffic patterns across millions of devices—is a differentiator that pure-play software vendors struggle to match. This data allows Cisco to offer security analytics and AI-based insights that others cannot easily replicate.

The Role of Artificial Intelligence and New Opportunities

Artificial intelligence is reshaping networking in multiple ways. AI-driven workflows require low-latency, high-bandwidth connections, and Cisco is positioning its hardware and software to support these demands. The company’s silicon and optics portfolio, including its Silicon One chips, are designed for AI and machine learning workloads.

Beyond networking, Cisco sees AI as a catalyst for new security services. The acquisition of Astrix Security is just one example. Another area is AI-powered network automation, where Cisco’s software can proactively adjust configurations, detect anomalies, and optimize performance based on traffic patterns.

Cisco is also exploring AI for observability. By applying machine learning to telemetry data, the company can offer predictive insights, helping customers avoid downtime and improve application performance. This is part of the broader trend toward AIOps (AI for IT operations).

Historical Context: Cisco’s Path to Software

Cisco’s transformation did not begin overnight. The company started making significant software acquisitions more than a decade ago, including the purchase of Webex in 2007 for collaboration, and later companies like Meraki (cloud-managed networking), AppDynamics (application performance monitoring), and Duo Security (zero-trust access). These acquisitions have been integrated into Cisco’s software portfolio, though integration has been a gradual process.

In recent years, Cisco has also invested heavily in developing its own software platforms, such as Cisco DNA (Digital Network Architecture) and SD-WAN solutions. The company has also embraced open-source technologies and APIs to ensure interoperability with third-party ecosystems.

Despite some smaller product lines, such as its UCS server business and Webex, Gold believes Cisco retains a significant advantage due to its scale and reach. “They’re the 800-pound gorilla in this space,” he reiterated.

Challenges Ahead

While Cisco’s strategy is ambitious, it faces several challenges. First, integrating a broad portfolio of acquired and homegrown products into a seamless experience is difficult. Many customers still run legacy Cisco gear alongside newer software, creating hybrid environments that are hard to unify. Second, competition from cloud providers and startups is intensifying. AWS and Microsoft offer native networking and security services that can displace Cisco’s offerings in cloud-native environments.

Third, the shift to software requires a cultural change within Cisco itself. The company has historically been hardware-focused and sales-driven. Moving to a software subscription model demands different skills, compensation structures, and customer relationships.

Finally, macroeconomic factors and supply chain disruptions can impact Cisco’s hardware sales, even as software revenue grows. The company must balance its dual identity as both a hardware vendor and a software provider.

Looking Forward

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 environments. This means offering end-to-end solutions that span from the data center to the edge, from on-premises to multi-cloud, and from human users to AI agents.

With the launch of Cloud Control and the acquisition of Astrix Security, Cisco is taking concrete steps toward that vision. The company’s Q3 earnings, which showed nearly 50% of revenue from subscriptions, indicate that the strategy is gaining traction. However, the full transformation will take years to complete, and success will depend on Cisco’s ability to execute on integration, adapt to new market dynamics, and maintain its competitive edge against a growing field of rivals.

Source: Network World News