What's Up with Cisco's Collaboration Business?

[Editor's note: Since publishing this piece this morning, Cisco confirmed Jonathan Rosenberg's departure as CTO and Cullen Jennings, who had been Fellow in the office of the CTO, as his replacement.]

Industry watchers have started to question Cisco's Collaboration strategy, with the group this year grappling with a leadership overhaul; the Spark-Webex rebranding (which some say signals a misstep), and the BroadSoft acquisition, which sparked a flurry of speculation not only on its impact on Cisco but also the larger UC industry. And let's not forget this has all taken place with a backdrop of continued transition from hardware to software and a subscription-based model. Taken altogether, that's an awful lot of change with which to contend.

But change is necessary for progress, as the saying goes. And industry analysts and other third-party experts mostly seem to agree that Cisco is making strides with its Collaboration business, if not for a few bumps along the way. While we won't go over the leadership changes in detail here, see the companion piece, "New Execs Eye Change at Cisco Collaboration," to get insight direct from the current executive team on where they are taking their various business segments moving forward into Cisco's FY2019.

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Chuck Robbins on stage at Cisco Live 2018

Where's the Growth Coming From?

Cisco recently released its FY2018 and Q4 financial results, which industry watchers greeted positively (see related No Jitter article, "Cisco's Turnaround Linked to Customer-First Approach"). Specifically, Cisco closed FY2018, ended July 31, with $49.3 billion in revenue, up 3% over FY2017. Q4 revenue hit $12.8 billion, Cisco's biggest quarter ever.

What's unclear, however, is how much revenue the Collaboration business contributed. During last month's earnings call, Cisco CFO Kelly Kramer noted "solid growth" in Collaboration segments including unified communications, telepresence, and conferencing, but neither she nor others at Cisco specified what that means by the numbers. For some perspective, I turned to UC analyst Zeus Kerravala, of ZK Research. By his estimate, Kerravala said he'd expect solid growth to mean a percentage increase in the high-single or low-double digits.

Part of the challenge is that Collaboration sits inside the Applications group, and Cisco didn't get that granular in its reporting. What we do know from the FY2018 report is that revenue from the Applications group grew 10% year over year, reaching slightly more than $5 billion, or roughly 10% of total revenue. Beyond Collaboration, the Applications group includes things like the Internet of Things business and AppDynamics, the application performance management company Cisco acquired in early 2017. And as Kerravala, pointed out to me, AppDynamics has been selling especially well for Cisco, and its growth could potentially mask some weaknesses elsewhere in the Applications group.

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Source: Cisco FY2017 summary report

How Collaboration Fits Inside Cisco

Better visibility into Collaboration's contribution should come later this month when Cisco publishes its 2018 annual report. For now, we look at the 2017 Annual Report, as shown on the right, for guidance. In FY2017, Collaboration products and services contributed 9% of total revenue, far behind Switching (accounting for the largest portion of revenue, at 29%), Services (26%), and NGN Routing (16%). In 2016, Collaboration contributed 9% of total revenue, as well, so when the 2018 report comes out we'll be looking to see if the Collaboration group has managed to move the needle.

Even if it has, the Collaboration business is really but "a pimple in Cisco's revenue posture," shared Tom Nolle, longtime independent consultant and founder of CIMI Corp.

But that's not to say Collaboration doesn't play an important role at Cisco. While other business groups outperform Collaboration on a dollar level, the collaboration portfolio provides Cisco a way to get its foot in the door with customers, Nolle added. As a topic, collaboration can promote meetings that in turn create the opportunity for more productive relationships and pull-through for the switch and router business -- "because collaboration doesn't work without access," he explained.

But as Cisco shifts its focus from traditional UC products toward team collaboration, a la Webex Teams, will it lose that pull-through opportunity? Anecdotally, from what Kerravala has heard from channel partners, Cisco's legacy products continue to do well, but selling Webex Teams can be a struggle, he said.

Cisco right now is trying to figure out what the next act is for its Collaboration business, Kerravala said. Of late, it's focused on being the "ease of use" collaboration tools provider, he said. But now with the arrival of user-friendly tools such as Slack for team collaboration and Zoom for video communication, where does Cisco go from here? Under the leadership of Rowan Trollope, who had been SVP and GM of Internet of Things and Applications, the Collaboration group put a lot of the emphasis on artificial intelligence (AI), but hasn't said much since his leave-taking in May, Kerravala said.

Of course, it seems that Cisco is clearly committed to AI within Collaboration, given that Trollope's replacement, Amy Chang, comes from the acquisition of Accompany, an AI company focused on relationships. Since Chang came on board, however, she has been lying pretty low and has yet to articulate her strategy. And as Kerravala noted, Cisco needs to make that strategy clear soon.