Cisco Systems Inc. plans to begin offering "cloud" computing service to corporate customers, pledging to spend $1 billion over the next two years to enter a market now led by Amazon.com Inc.
The Silicon Valley company, which is mainly known for networking hardware, is the latest in a series of technology vendors hoping to capitalize on the desire of many companies to rent computing services rather than buying and maintaining their own machines.
Cisco says its spending will go toward building up data centers to help run the new service, called Cisco Cloud Services, which will also rely on computer rooms operated by partners. Business customers, Cisco said, can rely on the computing horsepower for information-technology tasks such as keeping tabs on customer orders and letting employees access their work computers from any Internet-connected machine.
"Companies are looking for different ways to get IT done," said Rob Lloyd, Cisco president of development and sales. "Everybody is realizing the cloud can be a vehicle for achieving better economics [and] lower cost."
Cisco built its business, which has about $49 billion in annual revenue, largely on selling equipment that funnels data among servers in corporate-computing hubs and between those machines and the Internet. The company's latest push is fresh evidence that the cloud is causing technology giants to rethink their strategies as more companies shift spending from their own hardware to external services.
Amazon, though best known for online retail operations, helped pioneer the market. Analysts estimate that its cloud business, known as Amazon Web Services, pulls in $3 billion or more in annual revenue. Financial firm Robert W. Baird & Co. has estimated that each dollar companies spend on Amazon Web Services replaces $3 to $4 spent on traditional information-technology services.
Many of Amazon's customers are Web startups that never bothered to build their own computing operations. Cisco and some other rivals are focusing more on big companies and government agencies that will want to own their own computer-server farms to control their most important computing chores but will turn to cloud services for some of their tech needs.
"It does not mean that we're embarking on a strategy to go head-to-head with Amazon," Cisco's Mr. Lloyd said.
Cisco's approach differs from Amazon's in other ways. In some cases, Cisco plans to sell its cloud services to telecom companies that will then use them in a package of Internet-based services the companies already sell to others.
The company, unlike Amazon, also plans to tailor its services to work especially well with software from companies such as SAP AG, Microsoft Corp. and VMware Inc., all in widespread use at big companies.
Cisco said early partners that will use its cloud service include telecommunications companies Telstra Corp. of Australia and Canada's Allstream Inc.
The partnership with Cisco "allows us to compete more aggressively with other public cloud providers," said Paul Geason, a group managing director at Telstra.
(Telstra co-owns an Australian TV service with News Corp, owner of The Wall Street Journal.)
Cisco's $1 billion spending commitment underscores the company's determination to penetrate new markets. Revenue at the San Jose, Calif., company declined about 3.1% in the six months ended Jan. 25, and Cisco has predicted a steeper sales drop for the current quarter.
Cisco attributed the drop to a slowdown in orders from emerging countries and to some big customers holding off on new orders as they evaluate some of its latest products. But critics say Cisco is starting to feel the pinch from rival lower-cost network equipment from China's Huawei Technology Co. and others, and from new tech companies selling switching systems based on inexpensive components.
Cisco shares are down about 3.5% this year.
The company plans to discuss the new service Monday at a conference with its customers.
—Don Clark contributed to this article.