Cisco Systems, long known as the dominant player in networking hardware such as switches and routers, is in the midst of a strategic transformation. The company is shifting its focus toward software, services, and recurring revenue streams, aiming to position itself as a central player in cloud computing, cybersecurity, and AI-driven networking. This strategy, which has been unfolding over several years, reflects a broader industry trend where hardware margins shrink and customers demand more integrated, subscription-based solutions.

In its most recent quarterly earnings call, Cisco reported that 49% of total quarterly revenue now comes from subscriptions to software, security, and contract support, rather than one-time hardware purchases. This milestone underscores the success of the company's pivot, though it also highlights the ongoing challenge of transitioning a massive installed base from legacy capital expenditure models to operational expenditure models. According to Jack Gold, president of J.Gold Associates, "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."

The core of Cisco’s software strategy: Security and visibility

At the heart of Cisco’s transformation is a growing emphasis on security and network observability. With its equipment embedded across enterprise networks, telecom infrastructures, and service provider environments, 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 area is identity management for AI agents. While human identity management has been addressed for decades, the rise of AI agents—autonomous software entities that perform tasks, interact with systems, and communicate with each other—creates a largely untapped market. "This is a greenfield environment," Gold said, noting that many organizations are uncertain how to approach the issue of managing millions of non-human identities. In May 2026, Cisco announced plans to acquire Astrix Security, a platform specializing in identifying, managing, and securing AI agents and non-human identities, such as machine-to-machine connections. The acquisition bolsters Cisco’s ability to offer comprehensive security for the growing ecosystem of AI-driven workloads.

Unified platforms: Cloud Control and integration challenges

Cisco is also working to unify its vast portfolio of products—ranging from networking and security to collaboration and compute—into integrated platforms. This month, the company unveiled Cloud Control, an overarching management scheme that promises a single management plane spanning networking, security, compute, observability, and collaboration. The goal is to provide customers with a holistic view and control of their hybrid and multi-cloud environments, simplifying operations and reducing complexity.

However, integration remains a challenge. Gold pointed out that Cisco still has many "components" that are not fully integrated at customer sites. "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. This is a common hurdle for large technology companies with decades of acquisitions and organic product development.

Competitive landscape and Cisco’s advantages

Cisco faces stiff competition from rivals such as Hewlett Packard Enterprise (HPE) and Palo Alto Networks, which are pursuing similar platformization strategies. Cloud providers like Amazon Web Services, Microsoft Azure, and Google Cloud also offer security and identity solutions tied to their infrastructures, potentially locking customers into their ecosystems. Despite this, Cisco’s strength lies in its extensive installed base and partnerships across enterprises, hyperscalers, and semiconductor firms. Gold noted that Cisco remains "the 800-pound gorilla in this space."

The company’s scale gives it leverage in negotiating with hyperscale cloud providers and semiconductor partners, enabling it to offer integrated solutions that span on-premises, edge, and cloud environments. Additionally, Cisco’s long-standing relationships with enterprise IT departments give it a trusted position that many startups and pure-play software vendors lack.

Historical context: From hardware giant to software powerhouse

Cisco’s journey from a hardware-focused company to a software-driven organization began in earnest around 2015, when the company started emphasizing software-defined networking (SDN) and network programmability. Acquisitions like Meraki (cloud-managed networking), AppDynamics (application performance monitoring), and Duo Security (zero-trust access) accelerated this shift. The company also introduced software licensing models such as Cisco ONE and DNA Center, which bundle features into subscription tiers.

More recently, Cisco has invested heavily in AI and machine learning capabilities, both for its own products and to help customers manage increasingly complex networks. The acquisition of Astrix Security is just the latest in a series of moves aimed at capturing the AI opportunity. In earlier years, Cisco acquired companies like ThousandEyes (internet intelligence) and Epsagon (observability) to bolster its software portfolio.

Despite these efforts, Cisco still derives a significant portion of its revenue from hardware, particularly its Catalyst and Nexus switch lines, as well as its UCS (Unified Computing System) server business. While UCS has seen declining market share against competitors like Dell and HPE, it remains an important part of Cisco’s hybrid infrastructure offerings. The company’s Webex collaboration platform also faces intense competition from Microsoft Teams and Zoom, but Cisco continues to integrate Webex with its security and networking portfolio to differentiate.

Looking ahead: The network fabric operator vision

Cisco’s long-term 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 vision aligns with broader industry trends, where enterprises seek to simplify operations through unified platforms and managed services. By offering a combination of hardware, software, security, and observability, Cisco hopes to capture a larger share of IT spending while increasing customer stickiness.

The push into AI agent identity management is particularly timely. As organizations deploy more AI agents for tasks ranging from customer service to network optimization, the need to manage their identities, permissions, and interactions will become critical. Cisco’s acquisition of Astrix positions it to address this need from a security perspective, potentially giving it a first-mover advantage in a rapidly growing market.

However, execution risks remain. Integrating Astrix, along with other recent acquisitions, into Cisco’s broader platform will require careful planning and customer communication. Additionally, the company must continue to innovate in areas like AI-driven network automation and zero-trust security to stay ahead of competitors. Gold believes that Cisco’s size and reach give it the resources to succeed, but he cautions that the transition will take time. "They’re the 800-pound gorilla, but even gorillas need to adapt," he said.

In summary, Cisco’s strategy to become a software monster involves leveraging its hardware base, expanding into high-growth software markets, and building integrated platforms that span security, networking, and observability. The company’s recent acquisitions and product launches, such as Cloud Control and Astrix Security, demonstrate its commitment to this vision. While competition is fierce and integration challenges persist, Cisco’s installed base, partnerships, and scale provide a strong foundation for the journey ahead.

Source: Network World News