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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

A second point is that in important sense Cisco has always been a software company. It made its name building high-end routers that populate the Internet and yet the bit that made them useful was something called IOS, the routing platform itself. Customers and Cisco didn't think of this as being a software model but in a very basic way it was.

What seems to have changed is the notion of what software is and how firms express this in their accounts to shareholders or owners. The Cisco of old packaged up its software expertise in big, expensive boxes that sat in 19 inch racks. The more of these it sold, the more money it made on a defined margin. These days, in a world that conceptualises computing through the cloud, what sits in these racks has become only one part of a multi-layered product layer sold as a service. The margin on that is probably a lot lower because hardware if forever being commodified. The profitable bit is the software that makes the whole thing understandable, manageable, and perhaps even affordable.

So what does it all mean? For Cisco, it all sounds like business as usual. It's selling as much software as it ever did but that is simply bundled up in a way that shifts the business model away from selling monolithic hardware. This has been happening to lots of tech firms for at least the last decade as any PC hardware firm will attest. Equally, without the hardware and software integration, some of the need for platform-based firms such as Cisco would go away.

Cybersecurity is the perfect example of this trend, a sector in which buying security layers bundled up in boxes has given away to the concept of security as a layer in a software-defined network. The sheer complexity of managing hardware using distinct systems ensured the success of this model.

But what has really changed here is the way software has followed hardware in becoming a commodity. That is what the cloud is: a way of offering complex systems through a consistent set of standards and technologies that let anyone buy the same service for the same price. But the integration between the two remains complex when building network infrastructure, however unsexy that sounds to analysts. Cisco will continue to employ a lot of people who understand how to make the two gel.

It is not, ultimately, that Cisco is any more of a software company than it ever was but that its customers are. 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 that is at the root of this change.

 

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