LAS VEGAS -- Cisco Live -- The Internet of Things and the cloud will fundamentally change the way many companies bring in revenue, as they transform from selling products to providing services that deliver recurring revenue, Cisco CEO Chuck Robbins said Monday.
The change from focusing on product sales to developing long-term relationships will be comparable to the e-commerce revolution driven by the Internet in the 90s, Robbins said, speaking during a Q&A with global press during the opening day of Cisco Systems Inc. (Nasdaq: CSCO)'s big IT conference here this week.
"Technology will fundamentally change business models," Robbins said. For example, manufacturing companies selling elevators or jet engines can move from selling those products once to providing ongoing service to customers who buy the products. Connectivity will provide intelligent information, helping businesses provide better services to customers at a lower cost.
"Just as in the 90s, the killer app for the Internet was e-commerce, we see the first wave of [connected] industrial devices, preventive maintenance and transition to services will be the initial killer app," Robbins said.
For example, Cisco has developed an LED lighting system with built-in sensors that pull in information to the network for control, said Rowan Trollope, Cisco SVP & GM for the IoT and collaboration technology group, who shared the stage with Robbins and two other top Cisco executives for the Q&A.
The transition from selling products to services is an evolution Cisco is itself making, as it moves from being a hardware vendor to a vendor selling hardware, software and cloud services. Some 28% of Cisco's revenue is now from recurring sources, including new services such as network analytics, Robbins said. (See Cisco Launches Data Center Analytics for Obsessives.)
The networking vendor is looking to its channel partners and service providers to help deliver Cisco's own transition from developing products to selling software-as-a-service. Partners need "the ability to add value beyond installation, configuration, management and break/fix to deeply embed these technologies into the business that partners are serving," Trollope said. That's a huge transformation requiring new skills for partners. Some partners are struggling, and others are ahead of Cisco in the transition.
Cisco is focused on helping partners achieve profitability because it depends on them, Trollope said. To help partners make the transition, Cisco included new training and certification services in updates to its Digital Network Architecture, announced today. (See Cisco Navigates Risky Path to Cloud Opportunities.)
Service providers in particular are partners providing connectivity -- and more. "We all understand that the service provider has an amazing value proposition relative to the connectivity of millions of devices and value-added services they will deliver to the enterprise on top of of those services," Robbins said. "They've done this forever, and I have every belief they will continue to do it going forward."
Cisco sees a great advantage in its ability to bridge the service provider and networking environment. For example, Cisco acquired Jasper Technologies, which provides cloud management for IoT devices, early this year; Cisco partners with service providers to provide connectivity and services on top of the Jasper platform. (See Cisco Looks to Jasper Acquisition to Transform Enterprises – & Itself.)
In conjunction with business models, technology platforms are changing fast. For example, many manufacturing companies are still standardized on Microsoft Corp. (Nasdaq: MSFT) Windows XP, introduced 15 years ago, and are just now making the transition from it.
The XP boxes deployed for on-premises industrial automation aren't being replaced, Trollope said. Instead, technology is moving to the local data center and cloud. When manufacturing businesses deployed XP, the platform was the only cost-effective way to achieve the required capabilities. But that's changed. In addition to moving to the cloud, capabilities that formerly needed an XP box can now run on a router.
Delivering solutions via the cloud helps customers iterate new technology faster, and Cisco is working on bringing that same agility to its hardware innovation, Robbins said.
Platform lifecycles see disruption literally every six months for the fundamental building blocks of the Internet and mobile experience for consumers, Zorawar Biri Singh, Cisco CTO and SVP, cloud services and platforms, said. For example, the game Pokemon Go, introduced just a week ago, is already seeing traffic and the number of daily users exceeding Twitter.
"I say that to just give you a point of view on fundamental usage and disruption," Singh said. "Nintendo had been looking at what to do in mobile, and may have actually reshaped culture this weekend."
To achieve the Internet's innovation potential will require new network architecture, Trollope reckons. The next-generation network will require IPv6, he said.
The next-generation network also requires new ways of thinking about security, Trollope added. The first version of the Internet was built without security as a consideration. But security has become more important. First-generation attacks threatened computers, as viruses and other malware crashed systems. But now security literally threatens lives. "We need to be making sure we're driving security deeply into the fabric of the next generation of the Internet," Trollope said.
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