FORTUNE -- Cisco Systems' "transformation" into a more software- and services-centric company is far from complete. Over the next five years, the San Jose-based networking equipment giant plans to double the amount of revenues that come from software from $6 billion to $12 billion. To that end, it's announced a string of software-related acquisitions, including SolveDirect, a maker of network services management tools, and Israel-based Intucell, which sells software for mobile operators, among others. It's also shifted gears in its collaboration business, which grew just 3% from 2011 to 2012. Cisco (CSCO) is now focusing on delivering videoconferencing services over the cloud to any screen -- not just pricey TelePresence rooms -- and allowing more interoperability with other collaboration tools like WebEx. Last week, the company announced that customers will be able to invite users outside of their company to participate in TelePresence meetings via the WebEx service on their web browser. Fortune recently caught up with Robert Lloyd, president of Cisco development and sales (and possible successor to CEO John Chambers) to hear more about the company's plans to revamp its collaboration business, and to get his take on the recent "working from home" debate sparked by Yahoo (YHOO) CEO Marissa Mayer.
Fortune: What's the status of Cisco's collaboration business, which seems to have dipped in growth?
Lloyd: I think that the collaboration business is at a turning point, it's in transition. I was with Cisco when we started the world of IP telephony. Along that journey we became market leader. Then we led the transition and created a market for immersive video, which we call TelePresence. We made that market occur by demonstrating how the technology could apply to company processes. Then we hit a recession, and people deployed the technology because they needed to save money. What's happening now is I think the market's moving away from taking advantage of those technologies only as endpoints. We're seeing a lot more software coming into that environment, and the market is turning towards endpoints being any devices -- my iPad, my Samsung Galaxy S3, my TV screen. So our model will turn more to software as well as increasing the number of endpoints and the cloud-based delivery of enterprise communications. The other transition is the cloud and people buying things as a service. As a result our gross numbers are down, but in most of these categories our market share is up, which means the market's kind of shifting. And with our market share position and the breadth of our portfolio we will power through that transition and I think come up with a much more integrated approach.
When do you expect that to happen?
I think it will take a couple of quarters. We are seeing increased demand for our cloud-based unified communications portfolio. And naturally this then leads to more recurring revenue for Cisco -- unlike selling equipment and phones, it's spread over time. This is actually part of our strategic plan, to build more recurring revenue.
You've been pushing technology that allows employees to collaborate outside of the office, but some companies are trying to get them back into the office. Are you seeing similar efforts from you customers?
We're not seeing that. When you really have to pull people together and you really have to transform a company that may be one tactic to doing it. At Cisco we bring all the leadership team together twice a year, but between those points we see them all the time -- in virtual meetings, from iPads in airports. I can hold meetings from my home, which I do. Since I have a global job I can hold a meeting at 10 o'clock and still see my kids before they go to bed. The vast majority of our customers are looking to virtualize their real estate and are creating flexibility in their business model and looking at more global markets. You can't do this any other way but by supporting a very virtualized work environment, or you will drive people crazy. We all know what it's like to fly to Bangalore. We're in San Jose, and if you took a knitting needle and stuck it straight through the world you would miss Bangalore by about 20 minutes. It's a long trip.
Obviously you have to eat your own dog food, but how do you make this part of the Cisco culture?
It's top down, driven from [CEO] John Chambers. There were metrics put in place for parts of the company to make sure they were driving for these changes. When I was running worldwide sales at Cisco, the first decision I made at the beginning of the recession was to cancel our big, annual global sales meeting which everybody loves and do a virtual meeting over TelePresence around the world, instead of all getting on a plane, which at our scale costs a lot of money.
How did people react?
They didn't like it. They missed their interaction with colleauges. But in the subsequent years they said in some ways it was better. They liked the ability to comment on a presenter's presentation in real time and watch their colleagues dialogue in an online chat. You get a real-time interaction that you couldn't achieve in a real room. There are examples across the board where we've used collaborative technologies in education, leadership, marketing, and communications that have really set the bar. We have people join meetings anywhere in the world on a WebEx connection. And now my WebEx can join my TelePresence, and from my WebEx I can appear in a TelePresence conference, so it looks like you're part of the same experience.
Absent a change of heart by Google, Reader will join a short list of beloved technologies sent to the grave.
By Verne Kopytoff
FORTUNE -- Technology companies shutter products all the time. New tablets sometimes flop. Apps fall out of favor. Hardly anyone notices, and even fewer people complain.
But there are exceptions like the uproar aimed at Google (GOOG) this week after it disclosed plans to kill Reader, a service that MOREMar 15, 2013 8:01 AM ET
Also: A look at Cisco CEO's radical new strategy; why Netflix got in trouble over a simple Facebook post.
Special report: Amazon's billion-dollar tax shield [REUTERS]
Amazon's Luxembourg arrangements have deprived European governments of hundreds of millions of dollars in tax that it might otherwise have owed, as reported in European newspapers. But a Reuters examination of accounts filed by 25 Amazon units in six countries shows how they also allowed the company MOREJP Mangalindan, Writer - Dec 7, 2012 2:24 PM ET
Markets for the products Cisco is best known for have changed. But with a $45 billion cash pile, it has plenty of options for transforming itself.
By Kevin Kelleher, contributor
FORTUNE -- As a purveyor of switches and routers that form the Web's backbone, Cisco Systems is responsible for building the Internet. Perhaps more so than any other company. But as the Internet evolves, Cisco has entered a kind of middle age, struggling MORENov 26, 2012 10:00 AM ET
A $73.5 million investment in shares of Apple Inc. is now worth $207 million
Oil revenues from the Trans-Alaska Pipeline provided the capital for the Alaska Permanent Fund, a giant savings account created by the state's voters 1976 to make sure the legislature didn't spend the windfall all at once. But what's fueled the fund's growth in recent years -- and helped it hit a record $40.1 billion this week -- are its MOREPhilip Elmer-DeWitt - Aug 3, 2011 6:41 AM ET
How many grilled cheese sandwiches will it take to pay off Sequoia Capital's investment in The Melt, a restaurant-tech startup?
FORTUNE -- Jonathan Kaplan, creator of the Flip video camera, is making the media rounds talking up his new venture: a chain of restaurants that serves nothing but grilled cheese sandwiches and soup.
Kaplan told Bloomberg Television last week that he is starting The Melt, with somewhere between $10 million and $20 MOREDan Mitchell, contributor - Jun 22, 2011 12:46 PM ET
By the same "PEG" measure, the 3 most overvalued are Amazon, Cisco and Netflix
Here's a simple exercise suggested by one of my readers.
Take a stock you're interested in and calculate its price/earnings to growth ratio, better known as its PEG ratio. The formula looks like this:
According to Peter Lynch, who popularized the measure, the P/E ratio of any company that's fairly priced will equal its growth rate. In other words, MOREPhilip Elmer-DeWitt - Jun 19, 2011 7:08 AM ET
Cisco is reorganizing its consumer business to acknowledge it never really took off. But the company has more divisions to shed before the Street is satisfied.
By Dan Mitchell, contributor
FORTUNE -- There's a certain allure to being a household name, so you almost can't blame Cisco CEO John Chambers for trying to push his company into consumer markets. But that allure is ultimately superficial. Cisco's core products are routers and networking MOREApr 19, 2011 12:12 PM ET
As John Chambers rebuilds Cisco, enterprise video conferencing is probably one business he won't have to muck with. Now, about Umi...
FORTUNE -- Over the past few years, networking giant Cisco Systems (CSCO) has aggressively entered markets as diverse as camcorders, set-top boxes and videoconferencing tools. The result? A company that many say has lost its focus. That's partly why, earlier this week, CEO John Chambers sent out a company-wide memo MOREMichal Lev-Ram, writer - Apr 7, 2011 3:31 PM ET
For a piece of Silicon Valley iconography, this photo is hard to beat
Below: The attendee list and who sat where, courtesy of Search Engine Land.Philip Elmer-DeWitt - Feb 18, 2011 3:35 PM ET
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