Cisco is in the midst of a years-long transformation, shifting from a hardware-centric business built on switches and routers toward a broader software and services strategy. The company aims to position itself as a central player in cloud computing, security, and AI-driven networking, leveraging its vast installed base and unique vantage point into enterprise data traffic.
The Shift from Hardware to Software
Cisco remains the dominant vendor of networking hardware, but recent years have seen heavy investment in software to build recurring revenue streams. In its Q3 earnings call in May 2026, 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 a deliberate pivot: instead of merely selling a switch or router and walking away, Cisco is evolving into a cloud service provider, offering ongoing services that generate predictable income.
Jack Gold, president of J.Gold Associates, notes that this transition is critical for Cisco’s future. "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 said. The strategy aims to deepen customer relationships and create stickier revenue streams that are less susceptible to hardware refresh cycles.
Security and Network Visibility: Core Pillars
At the heart of Cisco’s software strategy is a growing focus on security and network visibility. Because Cisco’s equipment is embedded across enterprise, telecom, and service provider networks, the company has a unique perspective on data traffic patterns. This visibility allows Cisco 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 identity tools for human users have been around for decades, managing identities for potentially millions of AI agents — such as bots, machine-to-machine connections, and autonomous systems — represents a largely untapped market. "This is a greenfield environment," Gold said, adding that many organizations are still uncertain how to approach the issue. Cisco is well-positioned to seize this opportunity, given its existing security portfolio and network intelligence.
In May 2026, Cisco announced plans to acquire Astrix Security for an undisclosed amount to bolster its AI agent security portfolio. Astrix is known for its platform that specializes in identifying, managing, and securing AI agents and non-human identities. The acquisition aligns with Cisco’s broader push to address the security gaps created by the proliferation of AI workloads.
Unified Management: The Cloud Control Platform
Cisco is also working to unify its diverse product portfolio into integrated platforms. Gold notes that this integration is one of Cisco’s greatest challenges. "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.
To address this, Cisco rolled out a new overarching management scheme called Cloud Control in June 2026. The platform promises a single management plane spanning networking, security, compute, observability, and collaboration. By offering a unified console, Cisco hopes to simplify operations for customers managing complex hybrid environments, reducing the need for multiple tools and dashboards.
Competitive Landscape
Competition remains intense. Rivals like Hewlett Packard Enterprise (HPE) and Palo Alto Networks are pursuing similar platformization strategies, bundling hardware, software, and services into integrated offerings. Meanwhile, cloud providers including Amazon Web Services, Microsoft, and Google offer security and identity solutions tied to their own infrastructures, often at lower costs. However, Cisco’s strength lies in its extensive installed base and deep partnerships across enterprises, hyperscalers, and semiconductor firms.
Gold believes Cisco retains a significant advantage despite some smaller product lines, such as its UCS server business and Webex collaboration suite. "They’re the 800-pound gorilla in this space," Gold said. Cisco’s scale and reach allow it to negotiate favorable terms with partners and offer end-to-end solutions that smaller competitors cannot match.
Historical Context and Evolution
Cisco’s software transformation did not happen overnight. The company began investing in software-defined networking (SDN) and network functions virtualization (NFV) nearly a decade ago, acquiring companies like Meraki (cloud-managed networking) and AppDynamics (application performance monitoring). Over time, these acquisitions have been integrated into a broader software portfolio, including the Catalyst and Nexus switching families, but with increasing software intelligence built in.
The acquisition of Splunk in 2024 for $28 billion was a landmark move, giving Cisco a major foothold in observability and data analytics. Splunk’s technology is now being woven into Cisco’s security and networking platforms, providing real-time visibility into network health and threats. This integration supports Cisco’s vision of becoming a comprehensive network fabric operator — overseeing and securing the flow of data and AI-driven activity across complex environments.
AI and the Future of Networking
Looking ahead, Cisco is doubling down on AI capabilities. AI-driven networking helps automate routine tasks like traffic optimization, anomaly detection, and incident response. Cisco’s AI-powered analytics can predict failures and recommend configuration changes, reducing downtime for enterprises. The company is also investing in silicon and optics designed for AI workloads, including its Silicon One family of processors and new switch ASICs for high-speed data center networks.
Gold emphasizes that Cisco’s ambition goes beyond selling hardware. "They want to be the fabric that connects everything — from the data center to the edge to the cloud," he said. This requires a shift in mindset from selling boxes to selling outcomes, such as guaranteed uptime, security posture, and performance metrics.
In the realm of AI agent identity, Cisco faces a greenfield market with few established players. The acquisition of Astrix Security positions Cisco to define best practices for managing non-human identities, which could become a significant revenue stream as AI adoption accelerates. Many organizations have yet to implement policies for AI agent authentication, authorization, and auditing, leaving a gap that Cisco can fill.
Challenges Ahead
Despite its advantages, Cisco faces hurdles. Integrations of multiple acquisitions can be complex, and customers may resist switching to a unified platform if they have substantial investments in legacy systems or multivendor environments. Cisco must ensure that Cloud Control and other platforms offer seamless interoperability with third-party gear, or risk alienating parts of its installed base.
Additionally, the rise of open-source networking solutions and disaggregated hardware (such as white-box switches) puts pressure on Cisco’s pricing and margins. Cisco must continue to demonstrate that its software and support services justify a premium over cheaper alternatives. The company’s subscription model helps smooth revenue, but it also requires consistent innovation to maintain customer renewals.
On the security front, competition from cloud-native vendors like Zscaler and CrowdStrike poses a threat. These companies offer lightweight, cloud-delivered security that can be more agile than Cisco’s traditional appliance-based approach. Cisco is responding by embedding security deeper into its network fabric and offering cloud-based management, but it must execute quickly to keep pace.
Nevertheless, Cisco’s massive installed base remains a formidable asset. Tens of thousands of enterprises rely on Cisco for core networking, and the company has deep relationships with IT departments worldwide. By layering software services on top of this hardware foundation, Cisco can upsell security, observability, and AI capabilities without requiring customers to rip and replace existing gear.
In summary, Cisco’s transformation from a hardware giant to a software and services powerhouse is well underway. With half of revenue now recurring, the company is successfully shifting its business model. The focus on integrated platforms, AI agent security, and unified management positions Cisco for the next wave of networking evolution. While challenges remain, Cisco’s scale, partnerships, and strategic acquisitions give it a strong chance of becoming the software monster it aspires to be. The coming years will reveal whether Cisco can fully execute on its vision, but the trajectory is clear: Cisco is no longer just a networking hardware company — it is becoming a comprehensive network fabric operator for the AI era.
Source: Network World News