Top 100: A dive into Cisco's cloud evolution

EDITOR's NOTE: Cisco Systems is ranked No. 70 on the 2017 Washington Technology Top 100 list of the largest government contractors with $291 million in prime contracts during fiscal 2016. In this blog posted earlier this year, we explore Cisco's strategy and how the company has evolved its go to market strategy.

Cisco is continuing its evolution from a company built on routers and switches to one that plays across a board swath of the IT infrastructure, from the cloud to security to analytics.

In the public sector, the company has been moving applications to hosted environments and that means getting FedRAMP-certified.

Since August, the company has had two of its collaboration suites go through the FedRAMP process to get the seal of approval that the products are secure and can be served via the cloud to government customers.

First through the gate was WebEx in August. The hosted product is used for conferencing. Then in January, the company’s Hosted Collaboration Solution for Government won approval with Health and Human Services as its sponsoring agency. HCS brings in video, document sharing and the ability users to pick what device they want to use – PC, laptop, tablet or smartphone.

But the shift to the cloud is about more than just how Cisco sells its products, Cisco's public sector head Larry Payne told me.

The company’s evolution also changes how it works with customers, partners and its own sales and engineering teams.

“We used to go in and sell to the IT organization all day, every day,” he said.

But now Cisco reaches mission leaders, so it is imperative that they understand what the agency is trying to accomplish and where they need help. Cisco has to talk their language, whether it is the Defense Department or a health care provider.

“We have to understand the customer in ways we never had to before,” Payne said. “We have to be able to have a relevant in depth conversation with the head nurse at the hospital.”

Cisco’s challenge is the same that nearly every company faces in today’s technology market. Whether you were selling products like a Cisco or if you were an IT services provider trying to increase billable hours, what you did five years ago to be successful isn’t what will make you successful today and tomorrow.

“There are a few huge trends driving the market today,” Payne said.

The first is digitization, a.k.a. the Internet of Things.

“Only 1 percent of the things that can be connected are connected,” Payne said. So there is tremendous growth there with cars, pumps, airplanes, HVAC systems and other systems all getting connected and reaping the benefits of sensors and diagnostic feedback.

“There is just an explosion of data going on,” he said. And customers will need to know how to use that data.

A second major trend or "dynamic" as Payne called it is complexity. IT is more complex. Systems and applications are more complex. Customers struggle to digest everything all the technology changes that are going on.

“The complexity drives up costs, it drives up security risks and it drives resource needs,” he said.

The complexity also is driving more customers to the cloud because agency IT departments don’t want to worry about the infrastructure. Let that be someone else’s burden. But this shift to the cloud has to be more than the old adage of my problems are now your problems, Payne said.

Customers also need to use the freedom of the cloud and as-a-service offerings as a way to pull IT deeper into the mission. Most are doing that but the degree can vary from customer to customer.

As a business it also has been tremendous shift for Cisco. Think about it. Not too many years ago, Cisco’s model was around selling boxes – routers and switches and the like. Today, that represents less than 50 percent of the company’s $49.2 billion in annual revenue.

Because of the increase in its revenue from the cloud and managed services, Cisco also has started recognizing recurring revenue. In 2016, the company reported $16.5 billion in what it called “deferred revenue” from its subscription-based and software offerings. That revenue was up 9 percent from the previous year.

Helping Cisco make this transition has been an aggressive acquisition strategy focused on the cloud, security and analytics.

WebEx was an acquisition from 2007. More recent deals include CloudLock, for cloud security, and AppDynamics, for application performance management. AppDynamics had already started its FedRamp process when Cisco acquired them, but they haven’t received their authority to operate yet.

“We’ve done $6 billion in security related acquisitions in the last three years,” Payne said. “And we haven’t been disappointed.”

While the acquisitions were not driven by public sector needs, Payne is always looking for ways to bring the new capabilities to government customers because the technology needs are very similar across the commercial and public sector worlds.

“The government has more security requirements and other processes, but those are more operational issues then technical,” he said.

Moving forward, look for Cisco to continue to shift more of its business to a cloud and managed service platform with collaboration, security and analytics offerings leading the way. Look for continued acquisitions and internal investments in those areas particularly as it relates to the Internet of Things.

Another area of Cisco’s evolution that Payne touched on and I should probably dig deeper into is its investment strategy. It is very active investing in tech startups. Some it later acquires, but most are just standalone investments in companies with promising technologies. But that will be a conversation for a later time.