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In 2023, communications suites and platforms will come into focus as enterprises look to rethink their hybrid work strategies.

The end of the year is near, and that means it’s time to deck the halls, jingle some bells, and start counting down the days until the start of the new year. For those in communications tech, it’s time to think about the year ahead and look back at one of the most tumultuous years ever for the industry. When I look back at 2022, I’m reminded of Mark Antony’s monologue in Julius Caesar when he exclaimed, “Cry Havoc! And let slip the dogs of war!” as businesses experimented with hybrid work and mostly failed. We found that return-to-office mandates don’t work, and a strategy adjustment will come in 2023. Then, we have turbulence in the capital markets. At the beginning of the year, Zoom stock was at $184 per share, RingCentral at $192, and Five9 at $140. Today, those companies now sit roughly around $66, $33, and $65, respectively. Even the “big guys” felt the heat, as Amazon, Microsoft, and Meta all took a hit on stock price and also had to do massive layoffs. Many industry watchers are now asking: What will 2023 be like? I’m predicting the year ahead to be one of modest recovery. We won’t see those lofty stock prices anytime soon, but we will see several trends (detailed below) that will change the industry, create challenges for IT leaders, and create greater economic value.

1. Suites dominate buying patterns and could disrupt Microsoft

Through the pandemic, businesses scrambled to adopt tools for remote workers. It’s common to find businesses with one vendor for messaging, another for calling, a third for video, and so on. In almost every conversation I’ve had with IT leaders, they want to move to a suite versus best-of-breed model. This shouldn’t be a surprise, as suites have won over time in other markets (office productivity, CRM, etc.). This puts Microsoft Teams in an interesting Schrödinger’s cat position, where it is advantaged and disadvantaged. Its strength is tied to its greater Microsoft products, so it will get a look from almost all companies. However, as companies explore Microsoft's suite, they might realize that none of their communications capabilities are best of breed. From my experience, Cisco and Zoom have better video, RingCentral and 8x8 have better voice, and Slack is a superior messaging tool. On top of that, Microsoft really doesn’t have a contact center service (though it has the Digital Contact Center Platform). It will be interesting to see how resilient Microsoft’s good-enough approach is and whether it can be the one app to rule them all.

2. The rise of platforms

The term platform is one of the most overused in communications. Every unified communications (UC) and contact center vendor tells me they are a platform and use their breadth of capabilities to support the statement. So which ones are platforms? In my opinion, none of them are right now, although most are headed in the right direction. A platform isn’t a bundle of products; that’s a suite (see above). A platform is a set of capabilities for others to create economic value on. Apple’s iOS, Windows, Salesforce, and Oracle are all platforms, and it can be seen by the massive ecosystems that surround them. Much of the platform talk from UC and contact center vendors has been marketing speak more than anything. Behind the scenes though, most of them have been building APIs, SDKs, and low-code/no-code tools to fuel their march towards building an ecosystem. 2023 won’t be the year that we see much in the way of public announcements, but it will be the year vendors are intensely focused on attracting developers, ISVs, systems integrators, and others to create bespoke experiences. The measure of success will ultimately be the size of the ecosystem, but we won’t know the winners for several years, although we should see some leading indicators this year. As I noted above, suites will win short-term battles, but make no mistake, platforms will win the war.

3. More use of AI across the meeting lifecycle

The use of AI in communications is common today. Almost all vendors have background noise removal, virtual backgrounds, video touch-ups, transcriptions, and other features that make the in-meeting experience better. But a meeting is more than turning on my video and talking to people on the other end. Meetings have a lifecycle, and we do things before, during, and after them. This includes sending meeting minutes, reviewing past content, summarizing to-dos, and following up on action items. These are typically things most of us do poorly. Oh sure, we all know someone who’s on top of this stuff and has a clean inbox, but these people are few and far between. Here is where AI can add tremendous value. For example, meeting minutes can summarize a meeting versus having to look through a transcript. Another useful feature would be to parse the meeting for action items and automatically assign them to people. A good way to think about it is that many executives have a personal assistant that continually preps them and whispers in their ear, but most workers do not. AI can give this capability to all of us, and you should expect more in this area in 2023.

4. Contact centers pivot back to people

Over the past several years, many businesses have been pushing intensely to bring chat and virtual agents into contact centers. This has some obvious cost benefits, and in theory, can improve the customer experience, as people get answers faster. The reality is virtual agents and chatbots are great but can’t be used for everything. Complex interactions or ones that elicit emotions, such as talking about health and money, require real people that show empathy. When virtual channels are used here, it can have disastrous results. In 2023, expect to see brands swing the pendulum back to AI-assisted agents, instead of trying to replace them. We will still see a net reduction in agents, but customers will still need (and want) to talk to a human agent.

Cisco VP Denise Lee discusses how the company has built sustainability into all aspects of its operations.

Companies and governments around the world are coming together to develop sustainability policies, goals, and commitments. According to a 2022 Gartner survey, 87 percent of business leaders are expected to invest more in sustainability over the next two years. Business leaders see sustainability as an investment that protects their organization from disruption, while also creating new values and business growth opportunities. For Cisco, sustainability is a huge part of the company’s strategy. Cisco’s engineering teams came together to create the Engineering Sustainability Office, which focuses on developing better products that help customers meet their sustainability goals. I recently chatted with Denise Lee, Vice President of the Engineering Sustainability Office, about Cisco’s efforts to build better products and why all companies should be thinking about sustainability. Highlights of the ZKast interview, done in conjunction with eWEEK eSPEAKS, are below.

  • Cisco has set a goal to reach net-zero carbon emissions by 2040, which would include scope metrics 1, 2, and 3. Companies use scope 1 and 2 metrics to measure emissions that they own or control, whereas scope 3 emissions are a result of a company’s activities but come from outside sources.
  • In July 2022, Cisco’s 2040 net zero goal was approved by the Science Based Targets initiative (SBTi) under its Net-Zero Standard. SBTi defines best practices for corporate net zero target setting based on climate science. In order to earn SBTi validation, companies must reduce their emissions by at least 90%. Cisco is among the first hardware and equipment companies to be validated under the SBTi standard.
  • In the near term, Cisco has set two other sustainability goals. The first one is 90 percent reduction in scope 1 and 2 global emissions by 2025. The second one is 30 percent reduction in scope 3 emissions from purchased goods and services, upstream transportation and distribution, and use of sold products by 2030. Additionally, by 2025, Cisco wants to incorporate circular design into all its products and packaging.
  • Europe, Middle East, and Africa (EMEA) are farther ahead when it comes to sustainability practices and their understanding of scopes 1,2, and 3. In EMEA, sustainability-related policies and regulations have already taken effect, such as banning certain materials from being used in products. Cisco plans to do the same across the entire supply chain, so it’s not a bespoke model for every global region.
  • Data plays a key role in sustainability. When companies understand the science and the data behind the products, they can adjust their thinking and practices. Within every organization, IT deals with droves of data. Organizations can bring IT into the sustainability conversation and make IT part of the solution, while also creating designated sustainability roles/offices. It’s about getting a diverse set of people together across the company to solve this problem.
  • Earlier this year, Cisco launched an Environmental Sustainability Specialization, which includes everything from training to incentives for returning used equipment to Cisco. The program recognizes partners for their commitment to sustainability, specifically the circular economy.
  • There are three actions companies can take today to become sustainable in the future. First, get started no matter where you are in your journey. Second, have a baseline understanding of where you are right now and what needs to be prioritized. Third, think long-term and embed sustainability into the business.
The year is coming to an end, which means the holidays are here — and for sports fans, it also means the NFL and college football playoffs are around the corner. Football stadiums will turn into mini-cities holding tens of thousands of people, all of whom want to be hyperconnected as they cheer on their favorite teams. Through their mobile devices, they can share photos and video with their friends but also check on other scores, watch highlights and more, creating an integrated physical and digital experience. SoFi stadium (pictured), a 70,000-seat sports and entertainment arena in Inglewood near Los Angeles, hosted the 2022 Super Bowl, for which the Wi-Fi usage hit an all-time high. Even the teams have their own Wi-Fi networks on each side of the field on dedicated channels for use during the game. In those 10 years, Wi-Fi has delivered a 100-fold increase in carried traffic, skyrocketing from 300 gigabytes in 2012 to 31.2 terabytes in 2022. A major factor contributing to the traffic increase is social media, according to Chuck Lukaszewski, vice president and wireless chief technology officer for Aruba, a Hewlett Packard Enterprise Co. company. In addition to social media uploads of photos and videos on platforms such as Facebook, Instagram and Snapchat, cloud services such as iCloud also grew massively during that time period. The other contributing factor is spectrum. For more than two decades, unlicensed spectrum for Wi-Fi connectivity has been available only in the 2.4-gigahertz and 5 GHz bands. In fact, it wasn’t until 2016 that 2.4 GHz and 5 GHz bands became fully accessible. With growing connectivity demands putting a strain on existing Wi-Fi networks, opening up the 6 GHz band for Wi-Fi 6E couldn’t have come fast enough. It extends the efficiency features and capabilities of W-Fi 6, providing up to seven 160-megahertz channels for high-bandwidth applications. “At first, Apple didn’t support 5 GHz and some of the early Android devices didn’t support 5 GHz. Later, we had other issues to deal with, so we had half of the available spectrum,” said Lukaszewski, explaining the challenges of providing connectivity to fans in stadiums. Realistically, the 6 GHz band isn’t likely to come online before the 2024 Super Bowl. The initial use cases will be indoors, since 6 GHz band is not approved yet for outdoor operations. Lukaszewski envisions Wi-Fi 6E access points also making an appearance at the 2025 game. In the meantime, Wi-Fi technology continues to improve. Over the 10-year period, the peak speed doubled thanks to adoption of “proximate” RF designs, which “solved the engineering side of the problem,” according to Lukaszewski. Aruba supplied its technology for two games at Levi’s Stadium in Santa Clara in 2016 and Mercedes-Benz Stadium in Atlanta in 2019, where it collected real-time Wi-Fi data that showed hour-by-hour comparisons of the networks for the first time. By increasing the density by 30%, Aruba more than doubled the load that the networks could handle. “Nobody has ever published a chart like that for any stadium, anywhere in the world,” said Lukaszewski. “We’re in a unique position to be able to do that because we have two different years and it’s a similar design at different densities.” Aruba also collected data on concurrent Wi–Fi users. Stadiums were able to handle a lot more Wi-Fi users at once when Verizon Communications Inc. adopted Passpoint, a technology that allows mobile devices to automatically connect to a Wi-Fi network using their cellular SIM credentials. The cellular network is designed much like the cable network, where approximately 80% of the airtime is reserved for the downlink and 20% for uplink. During major games such as the Super Bowl, the upload traffic is three to four times greater than the download traffic. Passpoint is able to offload a staggering amount of traffic from the cellular network, where non-voice traffic is shifted over to Wi–Fi. The main takeaway from Aruba’s data is that Wi–Fi is very stable at high loads compared with cellular networks. Lukaszewski called Wi-Fi “the heavyweight champion of the two technologies,” which carries a massive continuous load on all the radios, both licensed and unlicensed. Now with more spectrum coming online, stadiums and partners will also have the opportunity to roll out new fan apps like sports betting. “The future is very bright,” he said. “The sheer size of the 6 GHz band means that we can increase the bandwidth that’s available to each user and keep up with new apps. So, the fan experience will become a lot richer.” For Bryant–Denny Stadium, a massive arena located on University of Alabama’s campus in Tuscaloosa, Wi-Fi 6E is an important technology that will help address many existing connectivity problems. The stadium is home to the Alabama Crimson Tide football team. However, it houses 10 other venues dedicated to various sports, as well as practice facilities and an upcoming golf course. The football stadium itself doesn’t provide the fan–facing services often seen in venues such as SoFi, with huge deployments of Wi–Fi. Bryant–Denny Stadium has one of the largest Distributed Antenna System or DAS implementations. The $10 million DAS installation has been refreshed every couple of years, improving wireless coverage, capacity and data speeds at the stadium. The suites located within the stadium have internet protocol–based tablets and television displays, which offers fans a unique experience from an audiovisual standpoint, said Rand Harris, associate athletics director of information technology at the University of Alabama. Additionally, the technology enables the recruiting department to go out and find new talent. The university just installed the world’s longest IP-based tunnel video wall for recruiting purposes. One of the challenges for deploying Wi-Fi throughout the stadium has been the concrete structure of the venue, originating back to 1929. On game day, Bryant–Denny Stadium could easily draw a crowd of 200,000 fans, with many tailgating outside the arena on the quad. There is an opportunity to get Wi-Fi to those tailgating areas, which would be triple what the stadium currently offers during a game, according to Harris. The stadium started building the core of its future outdoor Wi-Fi 6E network during the last renovation when Aruba was selected as the sole vendor for both the wired and wireless network. The university chose the Aruba CX portfolio that uses a single-switch operating system from edge access to the data center. It includes management tools, smart automation and distributed analytics. There will be about 5,000 access points installed in all the athletics venues when upgrades are completed. “Moving into CX is a comfort change,” Harris said. “We have to trust that software and pushing code is going to work the way it’s supposed to. Even the network engineers we’re hiring are a little different than they were before. But it has enabled us to start integrating equipment we’ve never thought about integrating into the network.” The university has worked alongside Aruba to implement precision time protocol into its stack, a process that took more than a year. In doing so, the stadium upgraded its TV broadcast ability by rolling out Sony’s new suite of IP-based cameras on the Aruba CX platform, which, according to Harris, was not only an industry first but is also easy to grow with. When the university builds a new competition arena next year, the platform will scale to create a futuristic place for fans to experience the game in the digital world. Once Wi-Fi 6E is fully deployed throughout the stadium, it will replace DAS. The university is working with AT&T and Verizon on offloading visitors to the Wi–Fi network. Wi-Fi 6E will also enable more advanced analytics. Today, the university mostly collects data on social media usage, but that’s expected to change with Wi-Fi 6E. “Previously, the driver was just fan experience,” Harris said. “But at the end of the day, without the core network, everything is useless. We had to step back and focus on operational efficiency. From an operational standpoint, our biggest driver is having analytics and collecting data in the stadium that can be used to solve issues and bring new features to our fan base.” Of course, Harris believes the fan experience is still just as important. The university wants to improve amenities such as its Crimson Rewards loyalty program in the stadium. The app is localized at the moment, so Wi-Fi is needed to enable new features such as gamification. Harris sees these enhancements, as well as many others, coming soon.

New ZTCA certification helps businesses close the widening security skills gap.

Recently, cloud security provider Zscaler introduced its Zero Trust Certified Architect (ZTCA) certification. The program is designed to help network and security professionals learn critical skills and also validate their expertise. The program offers coursework and practical guidance on how to effectively deliver control and visibility across zero trust initiatives. It’s important to understand that the course material extends well past Zscaler-specific information and delves into architectural constructs for real-world deployments. This helps create a baseline understanding of the technology, similar to the way Cisco educated the world on networking with its certification programs. I recently interviewed Raj Krishna, Sr. VP of New Initiatives at Zscaler, who discussed ZTCA, and how zero trust enables digital transformation by changing how cybersecurity is deployed. Highlights of the ZKast interview, done in conjunction with eWEEK eSPEAKS, are below.

  • Zero trust fundamentally changes how users access the network. The concept is very different from legacy networking architectures like firewalls and VPNs. The essence of zero trust is to hide the attack surface by eliminating public internet protocol (IP) addresses, so they’re not discoverable.
  • In the business context, zero trust is about connecting the right user to the right application based on policies that an organization has defined. For example, someone connected to a VPN can move laterally on the network and get access to information. With zero trust, however, a user’s identity must be validated before they’re allowed to get on the network.
  • There are several factors driving zero trust today, specifically the shift to hybrid work. People are working remotely from anywhere, which makes the enterprise network more vulnerable to security breaches. Companies pay a high price for breaches, both literally and figuratively—whether it’s ransomware that involves monetary extortion or an attack that damages the company’s reputation and brand.
  • Since zero trust is a new way of thinking about security, there’s a heightened demand for training programs. To address this need, Zscaler created the ZTCA program, giving security professionals the practical tools they need to implement zero trust in their environments. ZTCA starts with universities and other educational institutions in training “a workforce of tomorrow.” But it’s also valuable to those who already have a career in security and are looking to gain new skills.
  • The program is the first of many and has been well received in the industry. Zscaler designed ZTCA to be more agnostic than its usual product trainings. While it provides guidance on implementing zero trust with Zscaler, the key focus is on the core tenets of zero trust.
  • ZTCA was modeled after classic certification programs like Certified Information Systems Security Professional (CISSP) and Cisco’s CCNA/CCIE. ZTCA participants can receive credits while learning at their own pace. After completing the course, participants become certified zero trust experts and receive a LinkedIn certificate and badge.

The application of artificial intelligence to a converged communications platform enables better customer service and employee collaboration.

This week Dialpad announced the evolution of its “TrueCaaS” strategy, using the phrase “AI-Powered Customer Intelligence.” The company had been using TrueCaaS to describe its single cloud software stack that can deliver Unified Communications as a Service (UCaaS) and Contact Center as a Service (CCaaS). One of the primary benefits of a converged platform is having a single data lake with which to perform analytics to make business decisions. Most communications vendors offer UCaaS or CCaaS and then partner for the other capability. Dialpad is one of the few that has built a single, cloud native stack to deliver both. To date, the goal of TrueCaaS has been to enable customers to create better workflows between customer service via the contact center and employee facing communications using meeting, messaging, and other collaboration tools. Now that it has this back end built, it is now applying artificial intelligence to create new capabilities.

Dialpad Builds AI In-House for Faster Innovation

Most of the cloud communications companies partner to deliver AI capabilities but Dialpad has bucked this trend and builds all its own AI models in-house. Since acquiring TalkIQ in 2018, Dialpad has been creating advanced capabilities that combine communications with real-time speech recognition and natural language processing (NLP). Its AI-powered Customer Intelligence Platform builds on the more than three billion minutes of real-time data collected to date by analyzing conversations, automating workflows, and providing predictive insights. The launch comes at a time when the market is evolving from point communications solutions to unified employee and customer experiences, according to John Finch, Dialpad’s Sr. VP of Solutions Marketing. Many organizations still struggle to make sense of how to connect workers and collaborate using different tools. This is Dialpad’s way of addressing the need for an AI-driven workplace by tapping into AI’s full potential.

UCaaS and CCaaS Combined with AI Streamlines Workflows

“We’re making a brand narrative shift. Rather than being a TrueCaaS company or an AI company or a UCaaS company or multiple facets of that, we want to deliver an AI-powered customer intelligence platform,” said Finch. “It is the overarching element that encompasses all the products (contact center, unified communications, voice/video meetings, messaging, and more) across our existing TrueCaas platform.” The coming together of customer and employee facing workflows combined with AI enables businesses to streamline workflows. For example, it’s common to have marketing reach out to customers with promotions or special incentives. If the customer calls into the contact center for an issue and inquires about the promotion, the agent is often left hanging as the agent systems have no knowledge of marketing activities. I recently experienced this myself with one of the airlines I fly. I was making a flight change and asked about an e-mail promo I received, and the agent had not heard of it. By combing the systems and applying AI, the agent would not only have been able to talk knowledgeably about it, but the AI could offer recommendations on a flight or vacation I might be interested in from my history. Many companies are looking to shift the contact center from being a cost center into a profit center but the agents can’t be the integration point for the data. AI-powered Customer Intelligence Platform combines several Dialpad products in one place: Ai Contact Center, Ai Sales, Ai Voice, Ai Meetings, and Ai Messaging. As the name implies, Ai Contact Center is designed for contact center agents and it provides omnichannel support for voice and digital. Ai Sales drives revenue and sales productivity through coaching and sentiment analysis. Ai Voice is an AI-based phone system that integrates with Google, Microsoft, Salesforce, and others. Ai Meetings enables secure collaboration from anywhere. AI Messaging offers chat and unlimited text messaging capabilities. “Having this unified toolkit for an AI-powered workplace is important. For us, every call matters, every interaction matters,” said Finch.

AI Provides Better Automation and Information Flow

The new platform enables three key elements of “AI at work,” Finch added. First, there’s Ai Automation or providing information to different users within an organization, so they can do their jobs better. Second is Ai Assist, which involves helping contact center agents provide better customer service through suggested responses, real-time coaching, and automated compliance. Third, Ai insights is about understanding interactions (customer satisfaction scores or CSAT), optimization, revenue predictions, and engagement. Earlier this year, Dialpad launched a real-time predictive engine for customer satisfaction dubbed Ai CSAT, which analyzes every customer call to collect feedback. Rather than having customers fill out post-call surveys, it uses AI to obtain CSAT metrics from voice conversations. More recently, Dialpad rolled out a conversational search engine called Ai Agent Assist, which handles complex customer inquiries. Both are examples of how Dialpad is enabling capabilities that are uniquely AI-based. Dialpad has a few other things in the pipeline. It’s working on a net promoter score (NPS), an important customer experience metric that businesses use to understand the likelihood of a customer recommending their service or product to others. Dialpad is also encouraging organizations to use its low-code capabilities to develop on the platform. While it already has an out-of-the-box integration with Salesforce, other native integrations are coming soon, including HubSpot. The business landscape is now highly competitive, and customers have little patience for brands that can’t offer the highest level of customer service. Companies have relied heavily on manual integration of data, but things change too fast for this to be possible. Bringing together customer and employee communication tools is a good start but AI is now needed to find those key insights that enable constant innovation.

The 11th annual Amazon Web Services re:Invent is now in the books. This was the first fully attended re:Invent since the pandemic — 2021 had a capped audience — and I was curious to see how well-attended the event would be. The “about re:Invent” post, written prior to the start of the show, claimed “over 50,000,” but I heard that it may have been as high as 70,000, which is at pre-pandemic levels.

This is an interesting contrast to CES 2022 that kicked off the year, which drew about 45,000, way down from the close to 200,000 it typically gets. To me, the massive draw for re:Invent indicates that live events are back and people have a thirst to not just to connect with their peers but to engage actively, and that was great to see. This bodes well for industry and vendor events heading into 2023.

As is always the case, re:Invent was filled with more product news than one could digest. Instead of trying to pick and choose the most meaningful announcements, I thought it would be good to highlight my top takeaways from the event.

AWS is becoming a SaaS company

Long known as the leader in infrastructure as a service, AWS has quietly been rolling out software-as-a-service applications. A couple of years ago it launched Amazon Connect to move into contact centers. When initially released, it was a bare-bones product that had telephony, basic interactive voice response and not much more. Since then, AWS has added all the digital channels and has added a bevy of AI features. At re:Invent, AWS announced a number of updates to Connect, such as an artificial intelligence-based agent training tool called Workspace, machine learning based forecasting and a no-code interface for IVR.

The company also announced AWS Supply Chain is now in preview mode. As the name suggests, the product is designed to help businesses increase supply chain visibility to make faster, better-informed decisions that can save money, reduce risk and improve customer experience.

What’s interesting about these announcements is that Connect and Supply Chain are both homegrown apps that Amazon uses to run its own business. The company chose to build them because it felt it gave it a competitive advantage over prebuilt tools, and now it’s taking those capabilities and making them customer-facing.

I believe this process of taking internal apps and launching them as SaaS services will become standard practice for AWS. Future apps could include procurement, HR, expense management or anywhere else AWS feels it has an advantage.

AWS is creating better integrations across its products

When one thinks of AWS, it’s easy to think of a company that makes Lego-type building blocks. Developers take them, assemble the components and build something. Although that process works for many, it isn’t ideal for all organizations because there can be a lot of heavy lifting and skills required to tie the building blocks together. AWS is now pre-integrating the products to make deployment simpler. As an example, it announced the integration of its relational database, Aurora, and Redshift for cloud data warehousing. Rarely do customers buy one without the other, so tightly coupling them makes sense. Over time I expect more of this as well as simplified integration with its massive ecosystem.

The more customers buy, the more they save

I say this somewhat tongue-in-cheek, but it’s true. One of the things I’ve always liked about the company is it has a strong focus on ensuring their customers optimize spend. AWS has an optimization service that looks at customers’ spending to ensure they are using the best services. Paying for lightly used data to sit in a top end storage tier? No problem: AWS will tell the customer what to move where.

In addition to this, AWS continually lowers prices, often without telling customers. During his keynote, AWS Chief Executive Adam Selipsky noted that it has lowered prices 119 times in 15 years, often without the customer knowing. Pasquale DeMaio, AWS’ vice president of contact center, seconded the statement when he told me the company continually drops toll costs as it negotiates better rates, even when customers are in the middle of a contract.

As far as I know, no other vendor does this, because it’s counterintuitive to a healthy business. However, it builds a tremendous amount of customer loyalty and, by ensuring customers spend less, they invariably spend more as they save more.

It’s time to democratize AI and machine learning

The industry momentum around AI and machine learning has never been stronger. Much of the use of them has been by leading-edge companies with sophisticated developers familiar with how to build and operate machine learning and AI models. If the technology is to become ubiquitous, it needs to be democratized through simplification.

At the event, AWS announced eight updates to SageMaker to broaden adoption, including key governance and responsible AI features. Key new features include Role Manager to make it easier for administrators to control access for improved governance, Model Cards to make documentation easier, Model Dashboard offers and centralized dashboard to track performance and behavior, and Studio Notebook to inspect and improve quality and automated model validation. Also, announced were AI Service Cards for responsible AI, which I covered in this post.

AWS is choosing to partner with security vendors rather than compete

Best practices for cloud security are certainly an interesting debate, since there is no consensus as to what role the cloud provider should play versus a third party. Google LLC’s multibillion-dollar acquisition of Mandiant Inc. has thrown the gauntlet down and will compete with the mainstream security vendors. Although AWS has its own security portfolio, there is more of an emphasis on providing information to the security ecosystem to allow that group to do what it does best.

At re:Invent, AWS announced the Open Cybersecurity Schema Framework or OCSF, which includes an open specification for the normalization of security telemetry. It was good to see several key security vendors announce support for OCSF, including Splunk Inc., Palo Alto Networks Inc., Rapid7 Inc., Tanium Inc., Zscaler Inc., Broadcom Inc. and Cribl Inc., to name a few.

At the show, I discussed this with Cribl CEO Clint Sharp, and he was excited about it because AWS has the size and the market share to make OCSF stick. We discussed how there have been attempts in the past to standardize security, but they were driven by a security vendor, making it seem self-service, versus AWS, which could act as neutral body to the industry. Will it stick? Who knows? But based on the support it has, it is off to a running start.

This was certainly a solid show for AWS even though there was no “big announcement” carry the event. Instead, AWS continues to add bricks to a wall that’s getting broader and higher, and that has enabled it to keep its sizable lead over Microsoft Corp.’s Azure and Google Cloud Platform.

tech design background

Amazon Connect initially disrupted with a pay-per-use price model but is now flexing its artificial intelligence muscles.

tech design background This week the largest cloud computing vendor, AWS, is holding its 11th re:Invent conference. Given its leading position in Infrastructure as a Service (IaaS), much of the news revolved around infrastructure. Over the past few years, AWS has been offering a handful of SaaS services, one of which is its Connect contact center product, and the company announced several new capabilities to this solution.

AWS Connect Brings AI and ML with a Pay per Use Model

Amazon Connect, which is built on the same technology that Amazon customer service agents use worldwide, utilizes artificial intelligence (AI) and machine learning (ML) to deliver a personalized customer experience (CX). It’s a single solution with a simple user interface (UI) that companies can implement across multiple channels to connect with customers. One of the concerns regarding cloud contact centers is that they don’t scale past a few thousand agents. This has never been the case with AWS as its own contact center is almost 100,000 agents. One of the unique attributes of Connect is that it uses a true “pay per use” model. With traditional CCaaS services, customers pay $X/month/user. With Connect, a business can provisioning as many agents as they need but only pay for utilization. According to AWS, there are hundreds of thousands of customers making more than 10 million contact center interactions every day on Amazon Connect. Some of its big-name customers include Adidas, Adobe, and National Australia Bank, all of which have successfully rolled out interactive voice response (IVR). In the contact center, IVR provides callers with a self-service option before being connected to a live agent. It’s particularly valuable for seasonal companies where call flows tend to rise and fall. I recently talked with the Global Head of Reservations for a major hotel chain and she said the pay-per-use model saved the company a significant amount of money throughout the pandemic as travel halted. As travel picked up, the company could add to its deployment without having to guess at how many agents to provision.

Agent Workspace Reduces Training Time

While the unique financial model has created the opportunity for AWS, its differentiation comes in AI-based advanced features. Last year, AWS launched Amazon Connect agent workspace, which unifies all the tools agents need in one place to manage customer inquiries, view information, resolve issues, and handle calls, chats, tasks, and cases. At re:Invent, AWS introduced step-by-step guides for Amazon Connect Agent Workspace to reduce agent training time and resolve customer issues faster. These one-click actions are based on different triggers from customers, such as their profile information, case history, or past interaction from IVR. The triggers help provide agents with the most relevant, guided actions that they can take to resolve an issue. For instance, if a customer is calling about a lost order, the agent workspace will display the customer profile, the billing details, shipping status of the order, and actions in the step-by-step guide for replacing or refunding the item.

Amazon Connect Flows Brings No-Code to IVRs

Supervisors can design guided experiences for agents using Amazon Connect flows, a no-code workflow tool for IVR. The guides are use-case dependent and customizable. There are relevant drag-and-drop-components that support the guides, which can be configured within Amazon Connect flows. In addition to rolling out step-by-step guides for agent workspace, which is available now in preview, AWS improved the search and filtering function in flows as well. “This is a great example of a capability where we heard consistent problems like inefficient apps and long, hard training for agents—all of which finds its way to end customers,” said Ryan Braastad, senior product marketing manager for Amazon Connect. “We had the ability to test this with Amazon customer service, and working closely with them, we were inspired to make this available as part of Connect.”

Machine Learning Improves Forecasting

The second announcement is around the simplicity and single-click functionality of Amazon Connect. Earlier this year, AWS launched Connect forecasting, capacity planning, and scheduling in preview. It allows companies to predict, allocate, and verify that they have the right number of agents scheduled at the right time to serve their needs in the contact center. This ML-powered staffing capability became generally available this week. “The folks that do this for a living don’t have a lot of time. It’s usually a supervisor who also does the forecasting or planning or scheduling, and they want to get back to what they consider their main job as opposed to doing the administrative work,” said Tom Johnston, principal product manager for Amazon Connect. One Amazon Connect customer, Litigation Practice Group, was running into challenges with forecasting based on the historical data the company had with its previous system. Once the law firm switched to Connect, it saw accuracy of over 95 percent for forecasts and schedules. For the firm, the simplicity, flexibility, and the high quality of data “were all main reasons why they liked using it,” said Johnston. Lastly, AWS announced that Contact Lens for Amazon Connect will expand to include omnichannel support. AWS also added evaluation forms in Contact Lens to improve agent performance. Contact Lens is a tool that analyzes conversations between customers and agents through speech transcription, natural language processing (NLP), and sentiment analysis. While it’s been used primarily for voice, it can now analyze conversations across voice and chat channels in one place.

One of the major focus areas for Amazon Web Services Inc.‘s 11th annual re:Invent conference this week is machine learning and artificial intelligence, and that focus comes as businesses are looking to use the technologies to analyze data and transform their organizations.

At the event, the company announced a new resource called AI Service Cards to improve transparency and advance responsible AI. The use of AI and machine learning has exploded over the past couple of years as businesses are using the advanced technology to improve customer experience, streamline their operations, drive innovation and solve some of the planet’s biggest problems in climate, healthcare and exploration. With this much at stake, there is tremendous pressure on AI practitioners to help ensure that the AWS AI services are developed in an ethical way and that developers use them responsibly.

The “card” itself is a documentation template that provides critical information on the following important factors:

  • Fairness and bias which looks at how a system impacts different subpopulations of users such as gender and ethnicity.
  • Explainability which is a mechanism to understand and evaluate the outputs of an AI system.
  • Privacy and Security examines how model data is used to understand privacy & legal considerations as well as protect against from theft and exposure.
  • Robustness are mechanisms to ensure an AI system operates reliably.
  • Governance scores the processes to define, implement, and enforce responsible AI practices within an organization.
  • Transparency provides information about an AI system to enable stakeholders to make informed choices about their use of the system.

AI Service cards make responsible AI easier as it provides a single place to find information on the intended use cases, limitations, and design choices AWS made when designing the model and deployment and optimization best practices. This is part of AWS’ commitment to build its AI services with fairness, remove bias and be transparent and secure. At time of launch, AWS will have AI Service Cards for the following models:

Each AI Service Card is organized into four sections. The first is basic concepts, which provides information on the service itself and features included. The second is intended use cases and limitations, third is responsible AI design and considerations, and fourth is guidance on deployment and performance considerations.

AI Service Cards bring a high level of transparency to customers regarding the AI models. AWS goes through a rigorous process when building them, but that can be somewhat hidden from the customer as they use the finished product. This should be a useful resource for customers to ensure them that the AI they are using is built responsibly and with fairness in mind. Over time, AWS will roll out additional service cards.

The cards were one of several “responsible AI” announcements made at AWS re:Invent. The company also announced something called “SageMaker Model Cards” to help document customer-built machine learning models. Many businesses use homegrown tools, spreadsheets, or even email to document things like business requirements, model assumptions and observations, and key decisions. This might suffice if the number of models is small, but as they grow in volume and size, this ad hoc approach does not scale and leads to errors.

The Amazon SageMaker Model Cards use machine learning algorithms to extract information from the model and automate the document creation to track things such as input datasets, training results and more. There is also a self-guided questionnaire to document additional information like performance goals, risk rating, bias information and accuracy. These can be used to help customers improve governance of their own models while ensuring responsible AI.

AI and machine learning will continue to grow in usage, exponentially based on customer feedback. AWS has more experience than perhaps any company in building models, governance and the responsible training and use of them. It’s good to see the company taking its experience and making customer facing tools to ensure its customers can benefit from the long history AWS has in this area.

Brands need to take digital trust seriously – or face losing customers.

The proliferation and importance of data in our daily lives is driving the need for digital trust. On the enterprise side, the increase in connected devices, a greater threat surface and concerns over cybersecurity are the main reasons why organizations are looking for ways to safeguard their online business processes and interactions. To better understand how organizations perceive digital trust and how far they’ve come in adopting it, DigiCert and Eleven Market Research surveyed 400 enterprises and 400 consumers around the world in September 2022. The respondents consisted of IT, information security, and DevOps senior and C-level managers from enterprises with 1,000 or more employees. The survey findings were published in the 2022 State of Digital Trust report, which was released by DigiCert this month.

Four Pillars of Digital Trust

Before diving into the findings, it’s important to understand the foundation of digital trust. Digital trust consists of four key building blocks:
  • Standards that define trust.
  • Compliance and operations that establish trust and verify the digital certificates or instruments of that trust.
  • Trust management to ensure companies are properly handling certificate life cycles.
  • Connected trust for more complex supply chains.
“Digital trust matters. All enterprises (100% of the respondents) view digital trust as important,” said Diana Jovin, vice president of product marketing at DigiCert. “Interestingly, with consumers it’s also important (68%) but not to the same degree. But, both groups suggest that if you broke that chain of trust, they would either switch business partners or stop doing business with a company that violated the trust.”

Trust is Core to Customer Retention

According to the data, 99% of enterprises believe their customers would switch to a competitor if they lost trust in the company. In fact, about two-thirds have switched vendors after losing trust in that vendor. Nearly half (47%) of the consumers surveyed said they stopped doing business with a company that lost their trust in the past, while 84% would consider switching in the future. Digital trust is just as important for employees (100%) as it is for enterprises. The majority would consider switching vendors if they lost trust, with approximately half (51%) saying switching would be “likely.” Not surprisingly, the industry where digital trust ranks the highest in importance is financial services, followed by tech companies, retail, and manufacturing. Both financial services firms and their employees value digital trust due to the sensitive nature of their data.

Data, Security, and Customer Expectations Raise the Bar on Digital Trust

The top driver of digital trust is the growing importance of data. Every person in the world will consume around 20,000 gigabytes (GB) by 2025 — that’s 174 zettabytes (ZB) in total data. While the amount of data is significant, the importance of the data is even more valuable, whether it’s personally identifiable information, medical records, or personal photos. The second driver is the increasing threat surface as enterprises move to hybrid work environments. With remote sites, multiple clouds, and connected devices, enterprise networks have become more vulnerable to cyberattacks. As a result, the number of bad actors like hackers, cyber criminals, hacktivists, and inside actors grows each year — another reason why having digital trust is crucial. Customer expectations have gotten greater. As mentioned above, people are quick to switch to a competitor if they lose trust in a company. Although all companies value customer loyalty, one of the top concerns for consumers is security because more than half have experienced cyberattacks. The most common one is hacked accounts (26%), followed by data breaches (20%), bank and credit account theft (18%), account takeover (14%), hacked devices (13%), and identity theft (12%). With so much at stake, enterprises are optimizing digital trust to protect their customers and employees. A typical organization started its digital trust journey two to three years ago and has completed 75% (or more) of the journey so far, the report found. However, the top challenge cited by IT has been managing digital certificates. Regulatory compliance, the complexity of securing multi-vendor networks, and the lack of staff expertise were cited as the other leading challenges. There are several digital-trust initiatives enterprises have implemented to address these challenges. The main one is device identity and operations security, now fully implemented by 74% of enterprises. Zero-trust policies have been fully implemented by 58% of enterprises and certificate life cycle management by more than half of enterprises (55%). Across the board, top-tier companies are doing much better in driving digital trust outcomes, said Jovin. That’s because the top tier is four-and-a-half times as likely to believe a loss of customer trust will lead to losing the customer. These companies are also more likely to believe digital trust affects their brand, sales, and margin. Furthermore, they’re about five times as likely to switch partners if they lost trust in them. The top-tier companies are also further along in their digital trust journey and are likely to complete that journey much earlier than the bottom tier. Unlike the bottom tier, the top tier is more concerned about cyber threats. These companies take cyber threats seriously and are up to three times as likely to be engaged with important cybersecurity safeguards.

It’s Time to Establish a Digital Trust Office

DigiCert recommends organizations establish a digital trust office and appoint a leader who can be in charge of key initiatives. It’s a new concept, and those in IT architect positions most often take on the role of a digital trust officer. However, it will be essential going forward to create this stand-alone position within IT since it combines systems and data. “When we look at the findings, we see digital trust attached to outcomes in a meaningful way. It can affect top-line revenue, customer loyalty, and customer engagement,” said Jovin. “Our advice to organizations is to think about digital trust as a strategic imperative that supports the business, not just an amorphous security concept.”

Cloud computing leader announces key goal on water efficiency for data centers

It’s the week after Thanksgiving in the U.S., which means we now head to Las Vegas for the annual Amazon Web Services (AWS) Re:Invent show. This event is the company’s largest conference and is typically filled with news of product innovation from the largest player in cloud computing. While there were certainly lots of cloud computing announcements, the company did provide a significant update to its sustainability initiatives, stating that it will return more water to communities than it uses in its direct operations by 2030. AWS set the goal for water efficiency internally in 2020 and has since made significant progress by using recycled water at 20 data centers, returning 400 million gallons to communities through six projects around the world, and reusing 96 percent of AWS’s cooling water in irrigation in U.S. West (Oregon) Region. AWS works directly with municipalities to develop infrastructure to reuse non-drinking water for its cooling systems. It also has onsite treatment facilities to return clean water to communities. “This will ensure that AWS is having a positive impact on water availability wherever it operates,” Christopher Wellise, AWS director of sustainability said in a pre-briefing with analysts. “We’re actively developing more replenishment projects that are set to deliver billions of gallons of clean water every year to the communities in which we operate.” AWS has positioned itself as a sustainability leader, pledging to reach net-zero carbon emissions by 2040 and to power its operations with 100% renewable energy by 2025. Water efficiency is a pillar of AWS’s commitment for operating sustainably, along with greenhouse gas (GHG) emissions, energy efficiency, material reduction (IT equipment), and sustainable buildings. When it comes to using 100 percent renewable energy, for example, AWS initially aimed to hit its goal by 2030. According to Wellise, AWS is likely to reach it ahead of schedule, by 2025. Meanwhile, AWS’ $2 billion Climate Pledge fund will help drive technologies that not only help its business, but also other businesses achieve a low-carbon economy, where companies use energy sources that produce low levels of GHG emissions. Looking at specific global regions, 95 percent of AWS’s renewable energy is produced in Europe. However, some regions in the U.S. have also been able to achieve 95 percent. At the end of 2021, AWS reached 85 percent renewable energy use across its business. Going forward, AWS is focused on both reducing its own environmental impacts and helping commercial and public sectors achieve their sustainability objectives. Sustainable buildings is one example of how AWS is reducing impact on the environment. AWS builds its data centers from low-carbon steel and concrete, with sustainable materials used for air handling systems and water efficiency systems for cooling. “The changes have been incremental until now, but companies are recognizing that they need to get serious about the implementation of their emissions reduction activities and help build an ecosystem down the value chain, in order to make a real impact,” said Wellise. For its customers, once a company moves to the cloud, it must also optimize its architecture for sustainability. AWS helps customers do this through its framework for sustainability, which includes AWS professional services, guidance on digital transformation, how to reinvent products, and developing sustainable business models. The framework delivers a consistent approach for customers and partners to evaluate their architecture and implement scalable designs. It’s more than a checklist, but rather a tool that customers can use to track progress toward policies and best practices for more sustainable IT infrastructure. The idea is that customers are responsible for sustainability in the cloud, while AWS is responsible for sustainability of the cloud. “Sustainability in the cloud is about digital transformation. We start by encouraging our customers to join the climate pledge. Whether they’re startups or other companies that are driving low-carbon technologies, we ask customers to compete for sustainability accelerator funds from AWS,” said Wellise. “We also ask companies to engage with our professional services to help develop things like low-carbon frameworks.” AWS aims to make it easy for companies to develop their own frameworks through data democratization. Companies can access open data and commercial data through the Amazon Sustainability Data Initiative (ASDI), which helps researchers, scientists, and innovators advance their work on sustainability-related research. These are environment, social and governance (ESG) datasets that companies can use without having to collect and store everything themselves. As AWS continues to grow and gain new customers, understanding the secondary effects of the company’s actions will become even more important, said Wellise. AWS is ambitious about building “the most sustainable cloud infrastructure in the world” and these initiatives are a step in the right direction.

Don’t count RingCentral buying 8x8 a done deal quite yet.

This week, Investing.com reported that RingCentral is exploring a take-over of 8x8. I've heard this rumor before and with increasing frequency, as the valuation in 8x8 and its peers have fallen through the floor. Of all the publicly traded cloud communications providers, 8x8 is the most appealing from an acquisition standpoint, as it has a good product, a decent customer base, and an absurdly low valuation. At the time of writing, the market cap is only $474 million, which includes a 7% bump from the RingCentral rumors. This begs the question, should RingCentral pull the trigger and buy its rival? I can make a reasonable argument for and against it, which I will do in the rest of the post, but then give my prediction as to what will happen.

Low Valuation Makes 8x8 an Attractive Takeover Candidate

8x8’s peak market cap was a shade under $4 billion, so acquiring at this price seems like a steal. Its past quarterly results should better balance growth and profitability with a goal of having double-digit profitability in its 2024 fiscal year. Given the trend in previous quarters, the company seems on track to hit this. In acquiring 8x8, RingCentral would gain a company accretive to profitability, although dilutive to growth. The argument against this is although 8x8’s value has fallen, so has RingCentral’s, which now has a market cap of $3.3 billion, down from a high of $42.7 billion. At its peak, RingCentral could have made an overvalued stock offering, like what Zoom tried with Five9, swallowed up 8x8, and essentially gotten it for next to nothing on a stock-adjusted basis.

The Market is Maturing; RingCentral Needs 8x8 to Continue to Grow

Currently, the UCaaS market has no shortage of providers, and we might have too much supply for the level of demand. In mature markets, share gain is often hard to do without an acquisition. RingCentral could go on a buying spree and snap up many of the smaller UCaaS providers and do a roll-up — like the Rich McBee-led Mitel. In addition to 8x8, RingCentral could set its sights on other small players like Sangoma, Wildix, or even Dialpad, if it wants to raise a bunch of debt. This type of consolidation would give RingCentral consistent, year-over-year high growth numbers and cross-sell opportunities. The downside of this strategy is that integration becomes a big challenge, and RingCentral would need to maintain multiple platforms. This is one of the factors that eventually derailed Mitel. Also, I would argue that RingCentral does not need to acquire to grow since we are in the early stages of cloud communications. If one takes Zoom, RingCentral, Webex, and others at face value regarding the number of cloud-calling seats sold today, we are barely at 20 million. This is just 5% of the 400 million business desktops in existence today. I would argue that the bigger challenge for RingCentral and the rest of the UCaaS providers is to get the status quo off legacy systems and into the cloud. Just 25% of the market moving would increase the total addressable market (TAM) five times.

By Acquiring 8x8, RingCentral Would Get a Contact Center Solution

Over the last several years, we’ve seen a trend toward UCaaS/CCaaS integrations. To date, RingCentral’s strategy is to resell NICE’s product. On the other hand, 8x8 has been aggressive with its XCaaS messaging, which is based on having a single software stack for UCaaS and CCaaS (as CPaaS). An acquisition would give RingCentral its own product, obviating the need for NICE. This would be like the tact it took with Zoom, as at one time, RingCentral Video was Zoom under the covers. Today, RingCentral has its own video, and all new sales no longer include Zoom. With 8x8, RingCentral could build its own unified product and eventually shed NICE. The opposition to this point is that RingCentral has been wildly successful selling contact center with NICE as its partner, and the purchase of 8x8 would disrupt this. When RingCentral resold Zoom, the partnership was in place for RingCentral to be able to check the box when it came to video, but its sales motion in UCaaS was to sell calling. One could look at Zoom as a stop-gap measure until it could build its own video. With contact center, RingCentral has built a big business, and many of its UCaaS sales often start with NICE-based CCaaS. Also, while 8x8 has a nice down-market contact center solution, it’s not nearly as sophisticated as NICE, which has much greater enterprise appeal.

ZK’s Prediction

While anything is possible, I do not believe RingCentral will pull the trigger on 8x8. I am a believer in the expression, “where there is smoke, there is fire,” and RingCentral might likely have looked or is currently looking at 8x8. If they can get the company for a bargain, it would make the acquisition. All well-run companies, of which RingCentral is certainly one, constantly look at moves that can increase shareholder or customer value. It’s likely the company has looked at other moves, but it doesn’t mean there is anything imminent. From 8x8’s perspective, under Dave Sipes, the company has done a much better job of sales execution and lowering costs to shift to improve profitability. Management’s tone on earnings calls is that this improvement will continue, so selling later should fetch a better price. As I said, anything is possible, but I do not believe we will see RingCentral purchase 8x8 any time soon.

With its fiscal first-quarter earnings reported Wednesday, networking giant Cisco Systems Inc. started off the year with a bang.

Cisco’s numbers are always an important industry litmus test because it’s the biggest networking vendor and has the broadest portfolio. How their quarter goes is a general indicator for the direction of the network, collaboration, service provider spending and security.

Given the weak guidance given by Microsoft Corp., Meta Platforms Inc., Amazon.com Inc. and others, all eyes were on Cisco. The company certainly bucked the trend of a gloomy outlook with a more than solid “beat and raise.” For the most recent quarter, the company generated $13.64 billion in revenue and adjusted earnings of 86 cents per share. That was ahead of consensus estimates of $13.29 billion in revenue and 84 cents per share in profit.

For the second quarter, the company expects revenue growth between 4.5% and 6.5% with earnings between 84 and 86 cents. Financial analysts had projected 4.2% growth and 85 cents of earnings. Adding to the positive news, Cisco upped its full-year guidance. It has projected growth of 4% to 6% and raised that to 4.5% to 6.5%.

The numbers tell a high-level story, which can sometimes be misleading, so it’s always important to look behind the numbers at the company narrative to understand the business fully. Here are my top takeaways from the quarter:

The network has never been more important to businesses

The network has long been thought of as the “pipes” or “plumbing” of a company and most business executives gave it little thought. But the digital era has changed that perception. Almost all digital initiatives involve some combination of mobile devices, cloud services, connected things, edge computing and other network centric technologies.

This has raised the value of the network, since one can’t run a digital business on a legacy network. A supporting data point comes from my research that found 61% of business leaders believe the network is more important today than it was going into the pandemic. This has caused businesses to refresh the wide-area network, Wi-Fi network, data center and everywhere else connectivity is required.

On the investor call, Chief Executive Chuck Robbins (pictured) made the following comments which supported this thesis. “We also saw record performance from a number of products, including the Catalyst 9000 family, Cisco 8000, Wireless, Meraki, ThousandEyes and Duo,” he noted. “Networking is becoming increasingly critical to every organization, led by digital transformation, hybrid cloud, AI and ML workloads. This is driving demand for our technologies. As we’ve discussed, there are also tailwinds for our business such as hybrid work, 400 gig and beyond, 5G, Wi-Fi 6 security and full stack observability. We believe these broader technology transitions will require every customer to re-architect their network infrastructure, and in turn, fuel long-term growth across our portfolio.”

It’s worth noting that this “rising tide” for networking isn’t unique to Cisco, as its pure-play competitors of Extreme Networks Inc., Juniper Networks Inc. and Arista Networks Inc. all saw strong quarters. The growth in networking driven by modernization is a multiyear trend with Cisco capturing the biggest piece of the pie.

Cisco’s growth is sustainable

Historically, Cisco has had periods of growth that were red herrings, as much of that growth was driven by services, with product growth in decline. While the top-line numbers may look impressive, a company such as Cisco having its services outpace its product generally will lead to the business declining in the future because the company’s services are tied to product growth. This means slowing products will eventually lead to slowing services, which in turn leads to revenue decline.

This quarter product revenue was $10.2 billion, up 8%, while service revenue remained flat at $3.4 billion. Within the product number, Secure Agile Networks rose 12%, with switching growing in double digits.

There were a couple of hiccups in the product area, though, with data center switching declining slightly as was enterprise routing and collaboration. The areas where Cisco is seeing a decline are where the company is transitioning the business from a legacy on-premises solution to a more modern product. For example, Cisco has massive share in on-premises collaboration but has been transitioning this to Webex. The shift from perpetual revenue to subscription does cause a drag on the business, but those areas should resume growing soon after most customers have migrated.

Security is another area where Cisco is going through a transition. Its end-to-end security business rose 9%, but its industry peers are all growing significantly higher than that. Like collaboration, the installed base of Cisco on-prem is huge and Cisco needs to accelerate that shift and do a better job of tying security to networking.

All in all, it was a very strong product quarter for Cisco and that bodes well for the future.

Supply chain constraints showing signs of easing up

During the call Robbins made the following comment: “The strength of orders, increased visibility and easing supply situation provides us with enhanced visibility and predictability, which underpins the confidence we have in our business and our increased outlook for the year.” This was part of the reason Cisco was able to up its full-year guide confidently. Chief Financial Officer Scott Herren added, “As we navigated a complex supply environment, we were able to increase our shipments this quarter, resulting in about a 10% decrease in total backlog sequentially, which remains at the second highest level we’ve seen.”

It’s true that Cisco’s backlog remains more than $30 billion, but it’s also true that Cisco has better visibility into what’s coming and has a world-class supply chain team. Also, many customers I have talked to are now planning 18 months out to accommodate for product shortages. The combination of supply chain improvements and new customer buying behaviors will remove much of the friction of the past year. Herren did state that the company is seeing seasonality returning to normal, which should lead to reduced lead times and that’s good news for Cisco, its partners and customers.

Cisco is continuing to transition to subscription and software

Every metric that Cisco tracks that involve software or subscription showed signs of continued progress. This includes:

  • Annualized recurring revenue of $23.2 billion, up 7% year-over-year, product ARR up 12% YoY
  • Software revenue at $3.9 billion for the quarter, up 5% YoY, software subscription up 11% YoY
  • Remaining performance obligations of $30.9 billion, up 3% YoY, product RPO up 5% YoY, short-term RPO $16.4 billion

Cisco has been methodically shifting its business to software and subscription, and although there was no “big wow” this quarter, the numbers show a continuation of a multiyear trend.

A restructuring of the workforce is underway, not cost savings-based layoffs

On the call Cisco mentioned “restructuring actions focused on prioritizing our investments across our highest growth opportunities” as well as plans to incur pre-tax charges for severance and other expenses. This, of course, means layoffs, causing some of the media to interpret this as cost-cutting and headcount reduction. Although this makes good headlines, in this case it’s not true.

On the call both Herren and Robbins mentioned the actions taken are a realignment of people and not driven by cost. Herren added, “In a perfect world, you’d have 100% skill match, and you can take the people in the areas or the skills in certain areas and just move them to where we need to invest and unfortunately it’s not a perfect world.” He then followed up that statement by saying, “By the time we get to the end of the (fiscal) year, our expectation is we have about the same headcount that we had at the beginning of the year.”

Cisco’s business is as diverse as any and part of the success of the company has been ensuring the different business units are staffed correctly. While it’s painful for the people being let go, it is the right way to run business. One the call, management did not give much detail but did mention it was because they wanted to speak to the employees first before making details public, which is also the right thing to do.

Overall, Cisco executed well in its first quarter in a turbulent, complex environment with many global macro issues. It continues to make steady, methodical progress in its business model shift. As the supply chain constraints easing up, Cisco should see an acceleration of the business as that backlog gets reduced, setting up a strong fiscal 2023, although there are still many macro factors that could create “air pockets” of business. I’ll be watching.

digital concept art in gold