Cisco Systems, long known as the dominant provider of switches and routers that underpin the internet, is in the midst of a profound transformation. The company is shifting from a hardware-centric business model to a software and services one, aiming to become what analysts describe as a “software monster.” This pivot is driven by the need to build recurring revenue streams and position Cisco as a central player in cloud computing, security, and AI-driven networking.
For decades, Cisco’s primary revenue came from selling network hardware—box after box of switches, routers, and associated equipment. But as the technology landscape evolved, so did the company’s strategy. In its Q3 earnings call in May 2026, Cisco reported that 49% of its total quarterly revenue now comes from subscriptions to software, security, and contract support rather than one-time purchases. This milestone underscores a deliberate effort to emulate cloud service providers and software-as-a-service (SaaS) giants.
Why Cisco is doubling down on software
Jack Gold, president of J.Gold Associates, an industry analyst firm, explains that Cisco’s goal is to move beyond the traditional hardware sale model. “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,” Gold says. This approach offers higher margins, predictable revenue, and deeper customer lock-in.
The shift is not just financial; it is strategic. With its equipment embedded across enterprise networks, telecom providers, and service provider infrastructures, 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 attack vectors.
Security and AI agent management: The greenfield opportunity
One of the emerging areas Cisco is targeting is identity management for AI agents. While identity tools for human users have existed for decades, managing identities for potentially millions of AI agents—automated bots, machine-to-machine connections, and generative AI assistants—represents a largely untapped market. Gold describes this as a “greenfield environment,” with many organizations still uncertain how to approach the problem.
In May 2026, Cisco announced plans to acquire Astrix Security for an undisclosed amount. Astrix specializes in a security platform that identifies, manages, and secures AI agents and non-human identities. This acquisition bolsters Cisco’s AI agent security portfolio and positions it to address a fast-growing market that major competitors are also eyeing.
Integration and platformization: Cloud Control
Cisco is also working to unify its existing portfolio into integrated platforms. Gold notes that this is both Cisco’s greatest strength and its biggest challenge. “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,” he says. The challenge is that many customers have years of existing deployments with individual components, often from multiple vendors.
In response, Cisco recently launched Cloud Control, a management scheme that promises a single management plane spanning networking, security, compute, observability, and collaboration. Cloud Control aims to simplify operations for enterprises that have increasingly complex, hybrid, and multi-cloud environments.
Competitive landscape
Competition remains strong. Hewlett Packard Enterprise (HPE) has pursued a similar platformization strategy with its Aruba networking and GreenLake cloud offerings. Palo Alto Networks is also building integrated security and networking platforms. Meanwhile, cloud providers such as Amazon Web Services, Microsoft Azure, and Google Cloud offer security and identity solutions tied to their own infrastructures, creating a potential threat for Cisco.
However, Gold believes Cisco retains a significant advantage due to its scale and extensive installed base. “They’re the 800-pound gorilla in this space,” he says. Cisco has deep partnerships across enterprises, hyperscalers, and semiconductor firms. Despite smaller product lines like the UCS server business and Webex, Cisco’s reach remains formidable.
The road ahead: Becoming a network fabric operator
Looking ahead, 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, multi-cloud environments. This involves not only providing the underlying hardware but also the software layer that manages security, observability, and automation.
To achieve this, Cisco is investing in its own silicon, including the Silicon One family of network processors, and in software platforms like Cisco Catalyst Center, Cisco DNA, and Meraki. The company is also expanding its security portfolio through organic development and acquisitions, including Duo Security, Armorblox, and now Astrix.
Historically, Cisco has been a master acquirer, absorbing companies like Linksys, Scientific Atlanta, and Tandberg, though not all acquisitions have been home runs. The current focus is on software acquisitions that fill gaps in security, AI, and cloud management.
For many enterprises, Cisco remains a trusted partner for network infrastructure. As they migrate to software-defined networking (SDN) and intent-based networking, Cisco’s integrated offerings could provide a seamless migration path. However, the company must overcome the challenge of integration across its own vast product lines and compete with cloud-native alternatives.
Ultimately, Cisco’s strategy to become a software monster is a multi-year effort that touches every part of its business. With half of its revenue already from subscriptions, the company is well on its way. Whether it can fully achieve its vision depends on execution, competition, and the evolving demands of AI and cloud-native networks.
Source:Network World News