alphaspirit - Fotolia
To become a soup-to-nuts Internet of Things (IoT) infrastructure provider, as envisioned by CEO Chuck Robbins, Cisco will have to become a software developer on par with its talent as a hardware maker -- an ongoing transformation that remains its biggest challenge.
This week, Robbins met with the media at a two-day event in the company's San Jose, Calif., headquarters to showcase Cisco's latest partnerships and technology in the emerging IoT market. In Robbins' view, the moneymaking potential of IoT will surpass the billions of dollars networking companies initially made selling the hardware that became the Internet's foundation.
"I do believe that this [the IoT] is bigger than the first wave of the Internet. It has to be," Robbins said in his first major appearance since replacing longtime CEO John Chambers in July.
Indeed, the global IoT market will grow from $655.8 billion last year to $1.7 trillion in 2020, according to IDC, based in Framingham, Mass. A portion of that projected revenue will come from companies like Cisco selling the switches and routers that direct data traffic from the billions of Internet-connected devices, ranging from smartwatches, TVs and home thermostats to manufacturing robots, medical gear, and oil and gas pipelines.
But even more money awaits those companies that can also provide the IoT software that analyzes the massive amounts of data collected for actionable business intelligence, Robbins said. Just as valuable to customers will be the technology that can spot and thwart cyberattacks.
Cisco plans to provide it all -- hardware, analytics and security. But the one wrinkle in Robbins' grand plan is that Cisco has yet to show it can develop cutting-edge software in analytics or security, said Andre Kindness, analyst for Forrester Research Inc., based in Cambridge, Mass.
"I'm not sure they have the understanding from the software side of the house to build all this out quick enough," Kindness said.
Cisco's work in IoT software
To gain software smarts quickly, Cisco is opening up its networking gear to developers. Last year, the company embarked on an effort, called DevNet, to get network engineers and developers to build software together.
Andre Kindnessanalyst at Forrester Research
This week, the company launched DevNet Labs, a program aimed at attracting developers outside the DevNet community to join their colleagues in developing software.
These efforts are extending Cisco's existing strategy to jump-start its software work through acquisitions. In 2013, the company bought security firm Sourcefire for $2.7 billion. To get its software-defined networking platform started, Cisco spun in its subsidiary Insieme Networks in 2013.
Cisco's buying spree is far from over, as it builds products for IoT, cloud computing and security. "We'll continue to make acquisitions," Robbins said. Cisco has made more than 190 since the 1990s.
As proof it was making progress in delivering IoT technology, Cisco introduced a series of partners -- one of which was with FANUC America Corp., a maker of manufacturing robots. The partners have built a platform for analyzing robot activity to watch for trouble before a breakdown.
The system is being tested on 1,800 robots used by FANUC customers, including carmaker General Motors and high-tech manufacturer Flex, which recently changed its name from Flextronics International. Over the last six months, FANUC customers have saved $38 million by avoiding breakdowns that can cost as much as $16,000 per minute in lost productivity, according to Robbins. By the end of the year, FANUC plans to expand the test to 2,500 robots.
Another partnership showcased at the event was with Schneider Electric. The two companies have built a system of hardware and software to monitor oil and gas pipelines for potential problems that could disrupt operations.
The alliances represent Cisco's advantage in working with large technology providers that are less likely to work with Internet companies, such as Amazon and Google, Kindness said. The latter companies are known for disrupting business models, so major tech suppliers in specific industries are reluctant to open up their software to them.
"Cisco has the advantage of politics and fear," Kindness said.
For example, in 2014, Google acquired smart thermostat maker Nest Labs for $3.2 billion, giving the Internet giant a foothold in the home energy market. The move made Google a competitor of other device manufacturers.
Robbins believes the IoT is Cisco's best chance of reaching growth on par with the 1990s, when selling Internet infrastructure made the company the most valuable in the world in 2000, with a stock market capitalization of $569 billion. To do that, however, the new CEO will have to finish what Chambers started -- the transformation of Cisco into a software business.
Preparing the data center for the Internet of Things
Security polices for keeping the Internet of Things safe
Seven risks enterprise face with the Internet of Things