Back in the early 80s, when Cisco came on the scene, the cloud was the domain of meteorologists. And back then, Cisco was a company that made actual things, most notably the famous “Blue Box,” a router that connected computers across the Stanford campus using Cisco’s own local area network (LAN) protocol. And life was good. By the time the company went public in 1990, it had a market capitalization of $224 million. It’s only gotten better since: as of November 2020, Cisco had a market cap of around $173 billion.
But the ride to that epic growth in market cap wasn’t always easy. In fact, it was downright rocky at the start of the millennium. After decades of being a global tech leader, racking up profits and putting a big grin on their shareholders’s faces, Cisco entered the 2010s facing stiff competition from both domestic tech companies like Alcatel-Lucent and Juniper Networks, as well as from the overseas behemoth, Huawei. In 2011, their profits were so anemic, they slashed annual expenses by an eye-popping $1 billion and eliminated more than 6,500 jobs. Then a couple of years later, they made a hard pivot to B2B sales, and it was around that same time that they started exploring how to jump on the cloud bandwagon.
Their shift to cloud and subscriptions really took off in 2016, when Chuck Robbins took over as CEO. Robbins was an early and vocal evangelist for Cisco becoming a software and subscriptions company, and though the transition had a flattening impact on short-term revenues at first (because they were no longer getting that big up-front hardware cash), it was clear from the get-go that Robbins was committed to taking Cisco on the Subscription Economy journey. “We believe we will transition more of our revenues to a software- and subscription-based model and accelerate our shift across our portfolio,” Robbins said in an earnings call at the time. T
The Cloud Gains Steam
In the years since, Cisco has boldly followed its peers—even gobbling up some of them in the process—into the subscription-based, everything-as-a-service world. And experts predict that like with many shifts we’ve seen in the last year, the pandemic has only juiced Cisco’s subscription play. Because as businesses fight their way through the post-pandemic fog, they’re looking for every way possible to stay agile and match their IT expenses to the ever-shifting demands of their customers. “Network-as-a-service is a great option for businesses wanting to shift to a cloud operating model without a heavy lift,” says Todd Nightingale, Cisco’s senior VP and GM of Enterprise Networking and Cloud.
In March, 2021, Cisco announced its big, bold, and new subscription-based model—Cisco Plus—that will give customers the option to subscribe to hardware, software, and security products on either a “pay-as-you-go” or a “pay-as-you-grow” basis. With Cisco Plus, customers don’t own the Cisco equipment anymore, but are basically renting it with contracts for three-to-five years, essentially ending the buy-and-toss cycle of outdated gear.
There are two product paths with Cisco Plus:
•Cisco Plus Hybrid Cloud: The first part of Cisco’s as-a-service strategy encompasses data center networking, compute, and storage equipment. It’s expected to launch in mid-summer 2021 as a limited release in Australia, Canada, Germany, the Netherlands, UK and the U.S. And then later this year, as-a-service customers will have access to what they’re calling the Cisco Plus Experience, a self-service portal where customers can choose from a broad catalog of Cisco and partner services.
•Cisco SASE NaaS: Cisco’s new Network-as-a-Service (NaaS) solutions are also scheduled for rollout this year, focusing first on a cloud-based solution-as-a-service for secure access service edge (SASE). Cisco is planning for the limited release of NaaS solutions later this calendar year, a strategy that will unify networking, security, and visibility services across access, WAN, and cloud domains.
“As we move toward everything as a service, customers are buying more than simply a product,” says Maria Martinez, Cisco’s chief operating officer who’s been working since 2018 to accelerate the company’s shift to subscription-based products and services. “They’re also buying outcomes. Customers don’t want to buy something, then deal with provisioning, then deal with delivery. The experience needs to be seamless—and the only way that’s possible is when the people who work on the underlying technologies, support, and services work closely to enable customer success.”
Though there were plenty of experts who doubted Cisco could deliver on subscription-based networking, Robbins is thrilled his bet is paying off. “The irony of all ironies is that this transition to the cloud, which was supposed to be a big headwind for Cisco, is actually driving our growth,” he said in an interview with CRNtv. “I think that we’ve now proven that the model works, and we are in the midst of continuing to add more pure software assets to our business and also continuing to shift our core business to one of recurring software and subscriptions.”
And the numbers prove his point. Software subscriptions now make up 78% of Cisco’s software revenue, and the company is on track to meet its pledge to have software and services account for 30 percent of its total revenue over the next three years.
Martinez believes other companies can learn from what Cisco’s done right in their shift to subscriptions, as well as from the stumbles they’ve had along the way. “To reach your goal, you are going to have to take slight turns,” she says. “The key is to learn from those turns; every experience offers lessons, even if it appears to be a mistake.”