How Does Cisco Plan to Make Money From the Internet of Things?

Cisco has said the Internet of Things could be a $19 trillion industry. How large of a slice of that pie could Cisco collect itself?

Jun 8, 2014 at 7:00PM

In the following video, Motley Fool analyst Eric Bleeker talks with Cisco's (NASDAQ:CSCO) Chris White, who is a general manager of Internet of Things sales at the company. 

Cisco has said that the company's future is tied to the emerging Internet of Things trend. The trend promises to connect tens of billions of "things," from home products like lights to all the wind power plants in remote regions. At its core, Cisco sees additional sales and profits when more data flows across the world, so the Internet of Things is definitely a strong tailwind for the company. 

Yet the total opportunity facing the company is still nebulous. In the following video, Chris discusses opportunities between helping Cisco's existing product lines and also creating entirely new sales categories. 

A transcript follows the video. 

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Eric Bleeker: We're an investing site, so looking at how you're going to make money off this, do you see this as something that the main value-add to Cisco is just kind of a beneficial tailwind to core categories like switches and routers, or are you looking at whole new sales categories as the driver in the years ahead?

Chris White: You know what, Eric? The good news is, the answer is actually both. What we've come up with is specific vertical solutions -- so, literally, the connected factory floor of the future, smart parking solutions, the whole smart and connected community project, to help cities transform, the connected patient.

Therefore, we're working with a number of third parties, we're developing new software, we're putting together different solutions across our total portfolio, that include cameras and networking technologies.

But what we're also seeing is as we generate this new level of connectivity and data, there's a fantastic effect that says, "I need a new data center to help manage all that information I'm generating from the manufacturing floor. I have to extend that wireless network" -- as we say, from the carpeted world to the non-carpeted world.

The good news is it has an impact on both.

Bleeker: Great.

Could you give some examples? I think the number I read was 700 new products? Could you give some examples of some of the new products you're rolling out to address this opportunity?

White: Yes. The first wave is things like the 819, the ruggedized switching, routing, and wireless portfolio that we've got out in the market. That literally enables you to work in the middle of a desert in 120-degree heat, or work in some of these extreme environments at sub-zero temperatures. They also work -- if the power goes out, they'll work for three days on end, on battery power -- so there's a whole ruggedized suite of solutions.

We're also now developing a set of software on top of those, where third parties can integrate what have been legacy protocols in systems, into the new world. We're also looking at a whole suite of security solutions -- because big manufacturing plants, big power plants around the world, they get a little anxious when we call IP and they think, "My 15-year-old son can suddenly hack into a power plant in China, or Russia, or somewhere across America," so the security layer is an evolution.

We're looking at our existing portfolio, that's been designed for the carpeted IT world, and working with what we call the line of business buyers and saying, what part of the portfolio makes sense, and what also third parties we need to be working with?

I think there is a very rich investment community out there, and I think you've heard, we launched our own $100 million investment fund to help facilitate and drive some of this start-up community and some of this innovation, because we think it's going to be a combination of big companies like ours influencing the market, but also innovative start-ups filling in a niche or a segment that we need help on as well.

Eric Bleeker, CFA, owns shares of Cisco Systems. The Motley Fool recommends, Apple, and Cisco Systems and owns shares of and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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