Cisco is expected to make much bigger and more dramatic moves into software in 2008 as it fleshes out its strategy to make the network the key enabling platform for all IT operations. (See also: Cisco opening up IOS)

Unified communications, collaboration, Web 2.0 and data center virtualization will continue to drive the company's momentum in the new year as Cisco seeks to add more software and service capabilities to network infrastructure that heretofore have resided on high-end computers, servers, storage devices, PCs and special-purpose computing appliances. To that end, Cisco will compete more heavily with entrenched IT systems vendors – and partners -- such as IBM, Microsoft, HP and EMC.

"A set of challenges for them is to maintain their friends while they try to eat their friends' lunch," says Jim Metzler, an analyst at Ashton Metzler and Associates. “In particular, as Cisco moves into the data center, this will strain its relationships with EMC and IBM. Of course, their relationship with Microsoft has been strained for a while. I think that in 2008 the Cisco-Microsoft battle will heat up. One major part of that battle is collaboration. If you are an IT organization looking to add more collaboration capabilities, whose lead will you follow?”

Some analysts believe Cisco's ambitions may lead to the acquisition of a major software vendor – perhaps BEA Systems, a leading maker of enterprise infrastructure software for service-oriented architectures, business process management and enterprise social computing.

Cisco's move up the stack requires a strong portfolio of collaboration, unified communication and platform applications well beyond what they have today, according to Rob Whiteley, an analyst at Forrester Research. Cisco will have to acquire this talent and absorb a platform or application company of considerable size.

"BEA would be a logical, but lofty choice to truly build out 'the network as a platform,'" Whiteley states in his blog.

"If you walk the halls of Cisco and ask them, 'Do you have a lot of software talent,' you're going to get a lot of yesses," Whiteley says. "But they're all software engineers, they're all IOS engineers. They're not true application developers. If you look at the true enterprise-class vendors, one of the things they all have is a platform and an army of developers and more importantly, a development community. I just don't think Cisco has that, and organically building it would take years."