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Cisco wants to be a software company? Why customers should look beyond the hype

John E Dunn | Aug. 23, 2016
If we are witnessing the emergence of Cisco 2.0 as a would-be software giant it is the change in buying patterns and customer base

Five years ago Forbes published an article called Now Every Company is a Software Company. The magazine wasn't the first to notice this phenomenon and it certainly wasn't the last but it did neatly articulate a view that has grown louder with each passing year since the era of the dot.com boom when the notion first gained currency.

"Regardless of industry your company is now a software company, and pretending that it's not spells serious peril," wrote journalist, David Kirkpatrick.

In the 1990s, businesses used software in the same way they had once used typewriters, fax machines and office automation. Now, it appeared, software had in some way become integral to the identity of business, more than a mere tool to do a job. Something had changed. Software itself was the business.

This 'everyone is selling software' idea reared its head once again in recent days as networking giant Cisco announced 5,500 lay-offs, fewer than rumoured but still around seven percent of its global workforce. Tech firms go through a constant cycle of lay-offs and, as acquisitions are made, thorough tech cycles of growth and decline and in recent years Cisco certainly has form. As industry title CRN notes, in 2014 it laid off eight percent of its workforce, in 2013 five percent and in 2011 nine percent.

The latest slimming is consistent with this long-term pattern but some analysts spy a larger story based less on the size of the cuts but where they are being made. Revenue from routing and switching hardware is static or down, Cisco executives told journalists, and now only account for 45 percent of the firm's revenues. Customers are now buying more cloud technology and less on-premises equipment of the sort that made Cisco great - the firm's Application-Centric Infrastructure (ACI) platform sales grew 36 percent to $2.3 billion, the firm said and so it made sense to restructure the workforce.

One implication of this analysis is that as tech firms become more software-oriented they might become smaller in terms of headcount although this is debatable. History suggests that what really decides the size of Cisco, or any big tech firm, is the demand coming from customers and the firm's ability to generate profit by meeting it regardless of technology trends. Cisco also employs a huge number of people by industry standards; despite having a much larger capitalisation, Facebook employs around 15,000 to Cisco's 70,000 plus. This disparity in numbers between Cisco and other pure software firms will likely narrow but not by much.

Cisco wants to be a software company? Software or bust

Interestingly, Cisco first claimed it was turning into a software company at least decade ago and yet in 2016 the transformation is apparently still in the pipeline. Today, roughly a quarter to a third of Cisco's sales come from software which in late 2014 former CEO John Chambers stated was set to grow at 5-7 percent each year. Still, it sounds slightly paradoxical: Cisco is forever becoming a software company but never actually being one.

 

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