By Carolyn Mathas:

Cisco is in the midst of a digital transformation toward becoming a more software-focused company.

One need only look at its recent acquisitions to see the pivot toward the Internet of Things (IoT) and the cloud that many other mature tech companies are also making as the industry adapts to rapidly changing service provider and enterprise needs.

For example, at a June, 2016 Code Conference, Chuck Robbins, Cisco CEO discussed his attempts to evolve Cisco beyond its hardware roots to a business driven by software and online services and why partnerships are a way to bring that about.

The company’s acquisitions include its early 2016 $1.4 billion purchase of Jasper, which runs the largest commercial network to manage IoT devices. Jasper also tracks 28 million active devices, a figure growing by one million devices each month, with the majority being cars made by GM, Ford, BMW, Daimler and Nissan. When tomorrow’s cars connect to the IoT, many will likely be communicating on a Cisco Systems network. Robots, health care devices and manufacturing equipment also join the IoT via Jasper.

Charting a new course

Cisco is one of many tech companies charting a new course.

“We see examples from all major players in the communications industry as well as in industries that use communications,” says Michael Howard, IHS Senior Research Director and Advisor, Carrier Networks. “We see Ericsson invest in [Software-Defined Networking/Network Function Virtualization (SDN/NFV)] and other software, and take on IT with its HDS8000 data center in a rack product, as well as its partnership with Cisco. We see Nokia take in Alcatel-Lucent with very complementary portfolios. We see Juniper take on a strong software focus, including acquiring Contrail, and installing a missing optical piece in BTI. We see the new colossus, Dell/EMC/VMware to compete with the morphing HPE (Contextream acquisition) and IBM. Huawei has been building software expertise for several years and added datacenter/IT product lines. Ciena acquired Cyan to get advanced SDN/NFV orchestration software and customers.”

Cisco’s investments into data analytics and cloud-based tools for data centers would on its own be insufficient to offset the decline in its core switch and router business. Building recurring revenues from subscription services would need to be accelerated. In a recent interview, Cisco’s Executive Vice President and CFO Kelly Kramer informed MarketWatch that recurring revenue from services, collaboration and security business already represented approximately 28% of the $12 billion Cisco reported for quarterly sales, up 3% from last year.

‘The industry is in a growing digital transformation’

“The high-tech industry is going through a serious deconstruction,” said Global Equities Managing Director and Co-Founder at Global Equities Research, Trip Chowdhry. He predicts that job cuts will rise as workers that currently manage a variety of technology layers will be replaced by subscriptions to super cloud services. His current estimate is that some 370,000 layoffs will occur in the sector this year.

“The industry is in a growing digital transformation that is engulfing all areas of how the world operates and communicates,” says Howard. “All vendors are trying to find the set of ingredients or work with partners to fill the spectrum of pieces/parts to become a “prime vendor”: mobile/5G, IoT, Datacenter/IT, routers/switches/optical, SDN-NFV orchestration software and programmable networks, OSS/BSS, security, professional services, and analytics.”

“There has been a constant state of flux and re-invention over the past few years as vendors position or rather reposition and re-invent themselves to meet drastically changing service provider and enterprise needs, which we might frame as digitalization everywhere for consumers, businesses, service providers, and webscale operators,” says Howard. “Most vendors of any size that want to play in this new world are already on the move — and for any that are slow, it may already be too late.”