As the world wide web took off in a huge way across the world towards the end of the last millennium, Cisco Systems’s routers and switches — playing the vital role described as the “plumbing” of the internet — were a common sight in homes and offices.
More than two decades on, Cisco still maintains a sizeable presence in the networking hardware space, but the company has been shifting its attention to the software market. In an interview with The Edge Singapore, Cisco’s global head of sales Jeff Sharritts explains that the company still considers its hardware arm to be “incredibly important”, making up about 50% of its business.
The company still invests aggressively in this area to keep ahead of its competition, and continues to lead this area globally. Cisco is the largest networking equipment company by market capitalisation at about US$196.22 billion ($270 billion), almost four times as large as its next largest player. According to Statista, Cisco holds 41% of the global enterprise network infrastructure market as of August 2022, more than the next six companies combined.
The pandemic has extracted a significant toll on human lives and hit economies hard. However, Covid-19 has also shown businesses and people that “the network matters, probably more than it ever has before,” says Sharritts.
Around the world, governments have ploughed huge sums of money into modernising infrastructure to support arrangements like remote working, videoconferencing, file sharing and collaborative work practices. “So you see a lot of modernisation happening around the network and we want to capture that opportunity,” he adds.
But at the same time, Cisco also recognises that the world is changing. That is why Cisco is investing in adjacent markets, like collaboration across networks, network cybersecurity, and full stack observability solutions. Full stack observability refers to the ability to understand at any time what is happening across a technology stack. It enables IT teams to collect and aggregate information across multiple components in the technology stack, providing insight into the behaviour, performance, and health of a system.
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Back to the customer
Some may wonder, why does Cisco not simply double down on its strengths in hardware, given that it already is the market leader in this space? The answer, for Sharritts, is very simple: it all comes back to what customers want and how they want it. Over the years, Cisco has observed how customers are adopting newer, more innovative processes through what is known as “software as a service” models.
One key advantage of this model is that customers can move quickly to meet changing business needs and adapt to the ever-changing digital environment, instead of being tied to legacy systems that they own and therefore are compelled to use.
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Given the speed of change in today’s business environment, this need to be more agile is ever more pertinent. By using the software as a service model, customers can also do away with significant capital expenditure to replace hardware each time there are advances in technology, or worse, spend the money, and see the hardware they have invested in become obsolete.
“Most of our customers are leveraging software as much as they can from a technology perspective because of that agility, that ongoing innovation, [and] real-time delivery of new features and functionality, without ripping and replacing hardware,” Sharritts says.
On Cisco’s part, with software as a service, its customers benefit. The company itself, meanwhile, enjoys better earnings visibility and can therefore better plan its own investments to further improve its offerings.
In any case, Cisco’s software offerings are not unfamiliar to many. Some of its most prominent solutions are the collaboration and conferencing tool Webex, cloud management software Cisco Meraki, and the cybersecurity platform Cisco SecureX, which allows companies to integrate their existing security applications into a full-stack observability platform.
Most recently, the company’s technologies were used at the G20 summit in Bali to provide secure collaboration with Cisco Webex, as well as wireless connectivity and monitoring capabilities with Cisco Meraki and Cisco Thousand Eyes.
In 2017, the company set a goal of 30% of its revenue to come from software, and in FY2020, it had crossed the 50% mark, recording 51% of its revenue from software and service. In its most recent FY2022, Cisco generated over US$15 billion of software revenue, 81% of which was subscription-based. Total subscription revenue, including services sold as subscriptions were over US$22 billion and represented 43% of Cisco’s total revenue.
Opportunities in hybrid work
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Most notably, Sharritts sees many opportunities for Cisco in the hybrid work arrangements that companies and employees have adopted during the pandemic. While every company’s arrangement and vision of what hybrid work means is different, the common denominator that is needed is technology to bring ideas, work and people together, sometimes even over borders and time zones.
As such, the opportunity Sharritts sees for Cisco is for the company to deliver a seamless “hybrid work experience” for workers in and out of the office. The hybrid work experience not only comprises connecting people with one another, but also around ease of use and cybersecurity. Companies and workers want to be able to collaborate with one another and speak to clients and colleagues easily, all with the confidence that they are working on a secure system.
At the Cisco Live event held in Las Vegas in June, Cisco’s executive vice president and general manager for security and collaboration Jeetu Patel tells The Edge Singapore that homes are today better described as a “microbranch” of a company, with employees, as users, doubling up as part-time security and network administrators. “[As organisations embrace hybrid work,] employees need to connect from anywhere on managed and unmanaged devices, over secured and unsecured networks, to applications in multiple clouds,” he says.
Cisco, says Sharritts, is able to bring together the combination of collaboration platforms, networking, and security applications to deliver that hybrid work experience. But he also points out that a software-centred experience like this means that full-stack observability is paramount, so as to make sure that these systems are all operating as they should be, all the time.
“We say applications are the business nowadays. So, how do we help our customers make sure those applications perform incredibly well, that they’re available, they’re resilient so that the consumer can continue to operate without any downtime or any degradation,” he explains.
Sharritts adds that should an application not work, a customer is most likely to use it anymore, which is not what Cisco would want. “Helping our customers make sure that doesn’t happen to them is incredibly important.”
Growth opportunities
While Cisco has established itself as a big player in markets like the US and Europe, the company is now looking at the Asia Pacific region as the next region for growth. Sharritts points out that Asia’s GDP represents 45% of the world economy, and is home to the largest population of internet users. More importantly, Asia is also home to over 50% of the world’s middle class, which “are the ones spending the money.”
One notable point, Sharritts says, is that the region is currently leading the world in terms of adopting and building 5G technology, which he thinks is going to “pay positive dividends for many of the countries and the economies across Asia” and where there are “great opportunities for Cisco.”
He sees 5G solutions taking off in areas like manufacturing, where companies use these next-generation high-speed mobile networks to enable smart manufacturing on the factory floor, and in the logistics sector, where sensors are used to view, track and manage products in major warehouses.
Smart manufacturing is defined by the US National Institute of Standards and Technology (NIST) as having fully integrated, collaborative manufacturing systems that respond in real-time to meet changing demands and conditions in the factory, supply network and customer needs.
While all these are indeed Cisco’s addressable markets, Sharritts says that at the end of the day, the company’s priority is to keep its customer’s needs “front and centre.” Previously, customers would buy a hardware product from Cisco, install it, and Cisco moves on to the next deal. But with the pivot to a software-driven business, he says that the company now brings in technology from Cisco itself, as well as solutions from Cisco and its partners, so as to deliver a solution to its clients and allow them to realise value.
This value is not only up to the point of installation, but Cisco also makes sure the customer realises ongoing value through its lifecycle. “Customers want outcomes at the end of the day. They want a solution, something that’s going to solve a business problem, something that truly delivers business value.”
