What is Cisco?
Cisco, or Cisco Systems, is an American technology conglomerate company. The company started its operations in 1984. Since then, it has become one of the most prominent names in the technology industry. The company currently operates from San Jose, California. Overall, Cisco develops, produces, and sells networking hardware, software, and telecommunications equipment. On top of these, it also offers other high-technology products and services.
Cisco Systems started its operations in 1984 under Sandy Lerner and her husband, Leonard Bosack. Both of them worked at Stanford University in computer science. Initially, both founders used technology on the campus to link all computer systems to talk to one another. By doing so, they created a box that worked as a multiprotocol router known as the “Blue Box”. This router used circuitry made by Andy Bechtolsheim and software written by William Yeager. This adaption helped lay the foundation for Cisco IOS.
However, the company faced a setback in its initial days due to legal issues. This situation forced Bosack and an early employee to resign from Stanford. During this period, Cisco hired more employees to create a base team for its operations. They also appointed Bill Graves to become Cisco’s employee, although short-lived. One year later, John Morgridge became the new CEO.
Cisco got its name from San Francisco. Initially, the company used “cisco” with lowercase letters. However, they changed it later. The company also went public in 1990 with a market capitalization of $224 million. During the years, Cisco kept increasing its operations and developing its existing products and services. At the same time, it acquired several companies.
Cisco also introduced several products when the Internet Protocol (IP) became widely adopted in the 1990s. Due to these products, the company gained significant traction. Similarly, in 2000, it became the most valuable company globally. By then, the company had a market capitalization of $500 billion. However, it has lost some of its value over the years.
Cisco Systems also went under a rebranding campaign in 2006. The company adopted the shortened name “Cisco” and created “The Human Network” advertising campaign. Similarly, the company expanded its operations to many countries and added to its products. Although not the same valued company as before, Cisco is currently one of the most prominent names in the networking industry.
What is the Cisco Business Model?
Cisco is a well-known company in the networking hardware and software industry. It has been active for many decades now and continued its operations. However, Cisco’s business model isn’t straightforward as it uses a mix of various strategies. The company primarily makes money from its networking hardware and software business. Nonetheless, it also generates revenues from other sources.
Primarily, Cisco uses a provider business model. The company covers the needs of a high number of users worldwide. On top of individuals, Cisco also has high-profile industrial and business customers that depend on its products. The company provides products and services to those clients in exchange for a charge. Most of the products and services are of high quality.
Cisco is well-known for its hardware. The company manufactures and sells various products that it needs to run its operations. On top of these products, Cisco strives to innovate continuously to cover all customer needs. Similarly, this innovation allows the company to ensure its products are compatible with the developing technologies. One of the highest sources of revenue is telecommunication products.
Cisco also offers various infrastructure platforms which generate revenues. These platforms make money from the sale of core networking technologies. On top of that, it also sells applications that support these platforms. Similarly, the company sells security hardware and software, which are core to its business. Furthermore, Cisco offers various services as a part of its business model.
Cisco also generates revenues from the software and infrastructure services it provides. However, these revenues do not come from selling software or hardware directly. Instead, it uses a subscription business model, which provides a continuous income source. Its products include video and audio conferencing applications, meeting tools, and other software.
Overall, Cisco uses a complex business model which combines several models. The company sells products and services to customers through which it makes money. On top of direct sales, it also gets income from subscriptions and other services. The infrastructure platforms, applications, and services are the most prominent revenue sources. Nonetheless, some of these may fall under different business models.
How does Cisco make money?
Cisco makes money from various sources. Overall, the company generated revenues of $49.818 billion in 2021. These revenues increased by $517 million from the $49.301 billion it made in 2020. However, the company also suffered from a decrease of $2.608 billion in 2020 from $51.904 billion in 2019. Despite that, the company has had stable revenues for almost a decade in the same range.
Similarly, Cisco has made constant net income over the years. The company generated net profits of $10.591 billion in 2021. However, these profits dropped by $623 million from the $11.214 billion net income made in 2020. Similarly, the 2020 net profits decreased by $407 million from the $11.621 billion made in 2019.
Overall, Cisco’s revenues and net profits for a decade until 2021 are as below.
| Year | Revenue (in millions USD) | Net Income (in millions USD) |
| 2011 | $ 43,218 | $ 6,490 |
| 2012 | $ 46,061 | $ 8,041 |
| 2013 | $ 48,607 | $ 9,983 |
| 2014 | $ 47,142 | $ 7,853 |
| 2015 | $ 49,161 | $ 8,981 |
| 2016 | $ 49,247 | $ 10,739 |
| 2017 | $ 48,005 | $ 9,609 |
| 2018 | $ 49,330 | $ 110 |
| 2019 | $ 51,904 | $ 11,621 |
| 2020 | $ 49,301 | $ 11,214 |
| 2021 | $ 49,818 | $ 10,591 |
Cisco divides the above revenues into two segments, including products and services. The company provides more information about how these revenues occur. Similarly, Cisco divides those revenues into various markets. An explanation of each of these segments is as below.
Products
Cisco generates a high portion of its revenues from the sale of products. The company sells various products, including networking hardware and software. For example, they may include telephony products, server or application appliances, operating systems, etc. A breakup of the products that the company sells consists of the following.
| Product revenues (In million) | 2021 | 2020 | 2019 |
| Infrastructure platforms | $ 27,109 | $ 27,219 | $ 30,184 |
| Applications | $ 5,504 | $ 5,568 | $ 5,803 |
| Security | $ 3,382 | $ 3,158 | $ 2,822 |
| Other products | $ 19 | $ 33 | $ 196 |
| Total Product Revenues | $ 36,014 | $ 35,978 | $ 39,005 |
Overall, the infrastructure platforms category generates the highest revenues among products. These revenues constitute over 75% of revenues for the three years. This category represents the core networking offerings relating to several areas. These include switching, routing, wireless, and the data centre.
The second-highest earner within this segment is applications. This category generates 15% of the total revenues that Cisco earns. Usually, this category includes collaboration offerings, IoT, and AppDynamics analytics software offerings. After applications, the Security segment makes the third-highest revenues. This category includes earnings from the cloud security portfolio.
Services
Cisco also makes money from technical consulting and support services. The company provides these services in security, networking, data centre, cloud, and other similar areas. After products, services is the second-highest earning segment for Cisco. The company made revenues of $13.804 billion from this segment in 2021. However, it was only an increase of 3.6% from the $13.323 billion in 2020.
Conclusion
Cisco is a prominent name in the networking technology industry. The company sells several products and services, which generate billions in revenues each year. However, Cisco’s business model is complex due to various models. The company makes money from several sources, categorized into two segments. These segments include products and services, with details of each available above.
