Cisco CEO Chuck Robbins On The 'Proven' Subscription Model And 'Huge' 5G Opportunity

‘We've been investing significantly over the last few years in 5G,’ Cisco's Chuck Robbins tells CRN. ‘We've been investing in this space for four years and we haven't even announced our first product yet. That's a big commitment to spend that long in today's world with the pace things are going.’

5G Is In The Air

Cisco Systems CEO Chuck Robbins believes that the opportunity around 5G is going to be "huge" for the channel.

"I think the opportunity for partners in 5G is going to be around how enterprises think about consuming 5G services and how they build out IoT applications that are made possible by 5G connectivity, like autonomous mining vehicles, for example. … I think those industries’ solutions are going to be huge," said Robbins, who will celebrate his four-year anniversary as CEO in July.

The San Jose, Calif.-based IT giant has been quietly investing "significantly" in 5G for the past four years, without even releasing a product. But that will soon change, according to Robbins.

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Where is Cisco making its R&D investments today?

A few years ago, when we were looking at where we were going to prioritize our spend for the next few years, we stepped back. When you are a company of our age, you have core franchises. Companies have to look at those and make one of two assertions. That either they are not going to grow and you're going to use the profits off of those to fund secondary markets, or they still have growth opportunities. And we believe that our core franchises—service provider, core routing, campus and data center switches—we believed they had the opportunity to grow so we shifted a massive investment and we built out the next-generation profile that now includes the Catalyst 9000 and new wireless access points and SD-WAN solutions that now have our core infrastructure platforms growing again. That’s been a big area of investment.

At the same time, we've been investing significantly in security, which grew 18 percent last quarter from a revenue perspective, [and] our collaboration business, which is the biggest part of our applications business, that grew over 20 percent last quarter. We've also been investing significantly over the last few years in 5G and the core infrastructure that is going to be required to run the 5G networks for our carrier customers—we've been investing in this space for four years and we haven't even announced our first product yet, so it's coming. That's a big commitment to spend that long in today's world with the pace things are going and not releasing a product.

Where is the opportunity for partners in 5G?

I think the opportunity for partners in 5G is going to be around how enterprises think about consuming 5G services and how they build out IoT applications that are made possible by 5G connectivity, like autonomous mining vehicles, for example. How do you create an infrastructure in a mine where you have sensors and wireless that are giving you information that otherwise you would have to send humans in to collect? For things like safety and speed, I think those industries’ solutions are going to be huge. [So are] smart cities, which we've been talking about for a decade, but [they] are really going to take off with 5G, and then also, security. As 5G enables more connectivity, the threat surface is only to increase, so thinking about the architecture you have to have in this multi-cloud and IoT world and edge compute world—it's a different architecture that we've been building for over the past few years and I think partners are going to have to help our customers think through that.

Cisco has committed to growing its software sales to account for 30 percent of its business over the next three years. Where are you in achieving that goal?

As we embarked on this transformation a few years ago, we had a belief that there were lots of problems we were going to be solving for our customers that could be solved simply through software and there are also still problems that are going to require high-performance hardware. But we were viewed as hardware company even though 80 percent of our engineers were software engineers. So, it was also just a shift in how we talk about what we do and how we work with our customers, so we have made tremendous progress.

Our software business has been growing significantly. Last quarter, 65 percent of our software was coming from subscriptions, so we are way on track for the targets we set on our last analyst conference. The teams have done a phenomenal job. In 2017, it was the first time we launched a subscription on a networking product, on an Ethernet switch, which people didn't believe we could do. Not only was it widely successful, the product that it was launched on, the Catalyst 9000, became the fastest-ramping product in the history of the company. So I think that we've now proven that the model works and we are in the midst of continuing to add more pure software assets to our business and also continuing to shift our core business to one of recurring software and subscriptions.

If you were to give an assessment, where are partners in this transition? Is the channel moving fast enough into software and services?

I think the partners are moving with us. Every time we go through a transition, you have some partners that are actually ahead of us, which is not unlike it is with this transition. We have some going at the same pace that we are and then there is a group of partners that just feel more comfortable in whatever model they were in so they may make the transition, or they may continue to operate in the business model they were in and that's been the case whether it's been a technology transformation, or in this case, the business model transition.

The business model transition is more complicated than, say, moving from networking to VoIP. I think we are learning together. Any time you get into these models, you have to think about profitability and the P&L of the partners and when do they get paid versus a net 30 sale, so it’s a little more complicated and it requires us to continue to adapt and change as we continue to work through it with them. But I think so far, we have been very pleased.

Cisco recently made some big acquisitions—AppDynamics and Singularity Networks, for example. Can you talk about your vision for integrating it all together?

One thing we learned over the years is that there is no one answer to how you integrate acquisitions. Sometimes we've gone too fast and sometimes we've gone too slow. [It] depends on what they are—like Duo needed to be integrated into our security business because it’s core to an architecture. If you think about AppDynamics, it's really the beginning of a new set of capabilities that we are going to have in the DevOps and AIOps area and so they are more of an anchor position, but we are integrating them with some of our other technologies. We have done integration with a piece of technology in the data center called Tetration and [with] AppDynamics, we are taking the analytics you can get out of the network and the analytics that AppDynamics provides and creating a new more holistic visibility for our customers. So, each one is a little different, but we are pleased with the acquisitions we have made. They have all performed really well and have been really at a strategic point for our customers. I think they are all playing very strategic roles for our customers.

Are you seeing public cloud repatriation?

I joked that the irony of all ironies was that the cloud was supposed to be the death of Cisco five or six years ago, and now it's actually driving our growth. What our customers have discovered is there is not one cloud. They find themselves consuming services from Google, AWS, and from Azure and IBM. They're consuming collaboration services from us and service providers, and then they are consuming SaaS solutions from up to 200 different providers, so [customers] find themselves trying to manage this entirely new network where traffic is flowing in nontraditional patterns. That requires a re-architecture of the infrastructure and a new way of thinking about security, etc.

Relative to repatriation, I think that we are going to see as customers become more mature [about] what the cloud can do and what it doesn’t do and what are the cost and security trade-offs, I think they are making different decisions, where four to five years ago there was this race to the cloud because it was assumed to be cheaper, easier, faster. There are some elements of those characteristics that are true, but I think customers right now are rationalizing where is it really true and where it is perhaps not working for [them]. I think the tools continue to improve also in the private data centers. I've always had a view that over time, a lot of the capabilities in the public cloud will become more available in the private cloud, which will give customers more flexibility. Some of those capabilities are being provided by the cloud providers back into private cloud, so I think customers are going to have more optionality on what leads them to run an application in the private data center or cloud over the next few years.

Does Cisco plan on dominating the hyper-converged space?

Hyper-converged is a piece of the data center architecture that is growing incredibly rapidly. We have a solution that is growing likewise as rapidly. We started probably a little further behind a couple of our competitors from a timing perspective, but there are lots of use cases where our product is getting rave reviews and our teams are focused on those as it continues to grow as part of a broader architecture for us. In many cases, our customers are buying into the architecture, which is our switching infrastructure and compute, as well as the beginnings of this multi-cloud transition we are heading into.

In terms of Cisco's initial IoT strategy—the decision to put routers at the edge versus putting compute at the edge—why is this the way to go, and where is the opportunity for partners in the IoT space?

IoT is one of those markets where we hit these big trends in tech, and we talk about them for a decade, and then they explode. IoT is one of those areas where we're probably in about the 10th year and it's getting ready to take off. 5G is going to be a big part of what enables it. Our approach is, we are now putting general-purpose compute into every access product we build so that you have the capacity to run some element or portions of applications closest to where the data is being created. I think our portfolio largely is going to be a horizontal IoT portfolio, so one of the big areas for partners is to take that and create the vertical solutions that go into different industries, whether it's connected vehicles, or smart cities, or connected mining—there's lots of opportunities for partners to create the entire stack for IoT. I think it's going to be a big, big opportunity over the next decade.

I think all companies are still figuring out their role and how big the IoT play is. I joke with some of the financial community—tell me when you hear an earnings call where someone says our great performance this quarter is primarily due to IoT. We are still in the early phases. Our business is quite big relative to where many companies are now, but we are still very early.

How is AI going to transform the network? And do you feel like you have to make an acquisition in this space?

I think that many of the acquisitions we've made have elements of AI baked into them. We don't see AI as a business, we see it as an underlying enabler of capabilities we are driving for our customers—how AI allows us to do security more effectively in the network as traffic is flowing across the infrastructure or how AI allows us to correlate 7 trillion threats that we are blocking annually for our customers to be able to actually process threats at the speed you need to be able to process and correlate those threats and then dynamically defend for our customers. Those are the kinds of applications that we see AI playing a big role in in helping our customers do analytics in understanding how their infrastructure can work more effectively, what's going on in the infrastructure that is impacting applications, which in turn impacts business performance—those are the kinds of things we think are going to play a big role.

What benefit do partners get from a former channel leader as CEO?

I understand the channel incredibly well. I started here as an account manager, but within 22 months I moved into the channel in 1999. I helped architect the whole partner program that has evolved but still exists today with a focus on profitability. The cognizant decision we made to carve out part of our own margin and give it back to the partner community, we did that for the first time right after we moved in there. So, I understand them. I understand the scale they provide, the integration capabilities they provide, and the value and global reach they provide. It's quite simple for me to reinforce with our teams that we are absolutely going to continue going to market through the partner community and not just figure out what that means to our programs and our offerings as we build them out over time. It’s a significant competitive differentiation for us.

We have long, broad relationships and are very close to our partners. I still am close to many of the CEOs of our partners out there. In some cases, we've been looking at partnerships with technology companies and I'll ask those companies to actually take their technology and put it into the labs of a couple of our strategic partners and then ask the partners to give us feedback on whether we should be thinking about it or not, so they are very core to our strategy. Not only our go-to-market strategy, but to our technology road maps. More and more they have influenced how we think about our road maps and the different capabilities we need to deliver, and it's been phenomenal to watch because we built our products 10 to 15 years ago and then [would] say; 'Oh, yeah, we need to think about the partner community.' Now, our teams architect the solutions under the premise that they need to be partner-ready, whether it’s the profitability side or the integration into managed services. The partner community really is in our blood.

What role are you playing in the channel today?

I don’t get to spend as much time with them as I'd like, but whenever I'm traveling—which is most of the time—when I'm in a geography, almost every trip includes meetings with both customers and partners. I meet with our biggest partners everywhere we go; we do partner roundtables in those places. I continue to stay involved in issues around our strategy here and how the partner role continues to evolve. I think the most important thing I can continue to do for our partner community is just continue to reinforce our philosophical and strategic direction and then let the team build it out from there.

What's the biggest pain point for partners today?

I'm going assume that one of the biggest pain points is that business model transition because it's not simple. It's not simple for us—the complexity it brings are enormous. It's quite simple to say we are going to go there, but it's much more difficult to make that happen and I know as hard as it is for us, when you think about a partner who has many solutions and technology [suppliers] and most of those other companies they represent are also going through some level of transformation—they have to be able to navigate all of that at the same time. I believe that is one of the more difficult things that partners are trying to figure out.

What's coming down the pike that partners and customers should be on the lookout for?

I will tell you that I said on our last earnings call that I think the innovation within our portfolio is stronger than it's ever been in my memory. We have more launches coming in the next couple of months, so I think we have a lot in our pipeline that will help our partners continue to profit. I think the biggest thing we can do is deliver innovation that our customers really want and need because it gives our partners a lot of opportunity to create technology that customers can get excited about as opposed to technology that you have to spend cycles explaining to customers why they should care.

[Maria Martinez, Cisco's executive vice president and chief customer experience officer] and her team are doing a phenomenal job of building our customer success model in a way that aligns very neatly with our partner community and provides concurrent profitability for both of us together as we go forward with our [customer experience and life-cycle] model.

You've been vocal about issues such as affordable housing and poverty. What's near and dear to your heart this year?

Our company has this great culture of caring deeply about giving back around the world, and we do a phenomenal job of engaging in the communities in which we operate. Everything doesn’t emanate from San Jose. So many of our teams out in geographies around the world engage locally, but we also have things we care about at a corporate level. There's a lot of work we are doing in Silicon Valley because we have issues around hunger and affordable housing and homelessness, so we are coming up on the one-year anniversary of our $50 million commitment we made to homelessness. It was a $50 million philanthropic grant to let the people that know how to solve this problem do what they need to do with that money.

We have been working on education around the world. We have our Network Academy program that we have over 2 million students enrolled in right now. We have taken it beyond community colleges and universities, we've taken it into prisons, we've just been asked to take it into orphanages, and we've used it to educate refugees. Disaster response is a massive focus area for us. When these hurricanes are barreling in, you can assume we have a dozen people sitting on an island or somewhere nearby, out of harm's way, because they are the first ones in. For first responders to do what they need to do, we need to get the communications infrastructure back up and running.

I also think privacy and security is something we all have to care and talk about. I've said that we as a tech community need to work with public officials to come to a conclusion because it is a complicated issue, but we need to solve it. Privacy is a human right. You shouldn't have to choose between security and privacy. I think all of this connects into the issue of inequality—the gap is widening. I recently joined the board of the Ford Foundation because their singular focus on a global basis is inequality and I think it's an opportunity for us to bring technology into how they think about this issue as well. Our culture is one who cares. I've told our company, we have to run an incredibly successful company so we can do the things everyone cares about in their communities because that gives you the right to do that.