Cisco More Than Doubles Its Catalyst 9000 Customer Base

Cisco Systems' Catalyst 9000 switch, the foundation of the company's Network Intuitive platform, has become one of the fastest growing new products the company has ever introduced.

More than 3,100 customers have now bought the subscription-based Catalyst 9000 platform, more than doubling the product's customer base in just three months and setting the stage for the rapid and expansion of the platform into every corner of the Cisco portfolio, according to Chairman and CEO Chuck Robbins.

"This is the fastest-ramping new product introduction we've had in our history and a fantastic example of the innovation we've delivered over the last two years," Robbins said in a conference call with Wall Street analysts recently to discuss Cisco's second-quarter results.

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The Catalyst 9000 was launched in June and gathered some 1,100 customers in its first quarter of availability.

The rapid success of the Catalyst 9000 is the result of Cisco's success in firing up the channel, Robbins said. "Partners are thrilled we've reignited innovation in our core portfolio and given them an opportunity to work these refreshes with our customers."

The Catalyst 9000's success comes in part from the way it's priced, Robbins said. "For our customers, what we wanted to do was base subscription plus product to be at or below what they would have paid for a previous switch plus a perpetual license on it," he said.

"The plan was to create new innovation – not something we've done before because customers would think we were just changing our financial model at their expense – the subscription is fundamentally new technology that they'd never gotten from us before so they could warrant the incremental spend because they're getting incremental capabilities. It's not just us taking $1 they've been spending in the past and telling them now you have to spend $1.20 a different way."

Robbins envisions the Catalyst 9000 making its way out of its original use case in the branch and remote office and into the entire data center and the enterprise, he said. And the product has "room to run" thanks to Cisco's massive customer base.

"We have 3,100 [Catalyst 9000] customers so far," Robbins said. "Our total customer population is well over 800,000, so we obviously have room to run. The commercial market has been a great adopter of the technology. The enterprises have been evaluating it because it represents a different approach to automation, security and analytics.

Cisco brought the subscription-based strategy to its core networking portfolio with the launch of an automated, intuitive networking system designed to evolve and learn to anticipate actions and stop security threats.

The Catalyst 9000 family of switches is at the center of that so-called "network intuitive," or intent-based networking effort. The switches lean on hardware and software innovations to meet customers' demands for mobility, cloud IoT and security, Cisco says.

The new strategy also illustrates Cisco's key challenges, namely the need to adapt to a market rapidly moving away from expensive, proprietary hardware in favor of software-based solutions purchased on a subscription, or pay-for-consumption basis.

By the end of the second quarter of its 2018 fiscal year, recurring revenue accounted for about a third of Cisco's sales, according to CFO Kelly Kramer.

Dave Chandler, practice director, network solutions at World Wide Technology, a St. Louis, Mo., solution provider and one of Cisco's top partners, said the Catalyst 9000 has wide appeal, but for now, sales are concentrated in what he called "architectural" customers.

"We deal with more 9K in that context," Chandler said. "It is much more attractive to customers looking to reduce capex through automation, to deploy SD-WAN to reduce costs." Other "infrastructural" customers are looking at the switch itself as they consider cycling older switches out of their networks. "They're going to buy it and get as much life as they can out of it. Customers in refresh cycles are looking at it, looking at training and how it's different, and there's not much different. It can be plug-and-play."

As a result, Chandler said WWT's switch pipeline has "had a big flip" from Cisco's Catalyst 3850 to the Catalyst 9000. Chandler said he expects the Catalyst 9000 to begin making inroads into the enterprise, as well.

"The capabilities it provides allows it to do good things for the campus, branch, particularly in segmentation and security," Chandler said. "We also have a lot of conversations with enterprise customers. They're doing testing and validation. With large banks, and other institutions, it goes into the lab and is tested before they deploy, and I know several large companies doing just that right now."