Rene Haas, Arm’s CEO
The upcoming Arm IPO stands out in a starkly quiet and depressed IPO market. And as we look at this ray of business sunshine, consider how and why Arm has been so successful.
It’s one word: ecosystem
This isn’t just my armchair analysis, it is core to Arm’s corporate narrative and strategy. In their own words:
“If you are familiar with Arm, you have likely read or heard the term “Arm Ecosystem” at some point. …..No other business ecosystem comes close to this group of silicon, system and software companies responsible for shipping more than 250 billion Arm-based chips to date.
Remarkably, Arm itself has never actually produced a chip. It was an ecosystem strategy at its early outset and continues to be one of the biggest, and most successful ones to date. Consider that at least 90 per cent of smartphones produced globally today have Arm designs in them (and thus pay royalties to Arm). For “higher-end smartphones” the market penetration and share is a remarkable 99 per cent.
This is in stark contrast to players such as Intel, with a capital-intensive, vertically integrated business model.
Don’t just find your tribe, build it
What can learn from this and how could we apply this thinking in order to accelerate and scale our own businesses?
Arm started its journey as an in-house project (in Acorn Computers) to design more efficient Reduced Instruction Set Computing (RISC) chips. The need for lower-cost, small-size, energy-efficient chips was just starting to take off.
The design side however was daunting due to the resources required. So they found a solid partner (VLSI) who provided the design automation kit. This combined with out-sourced foundry technology gave Arm its efficient, and partnership-led beginnings.
This did not change Arm’s extremely modest resources, especially when compared to vertically integrated giants like Texas Instruments. As they decided on their business model and strategy they were tempted to go the “fab-less” route that Qualcomm or Broadcomm had gone. But this OEM model would eventually put them in competition with TI, Motorola or Intel.
They then made a critical decision on their ecosystem-led journey: they would be both “chip-less and fab-less”. The business model would be to specialise and design RISC processors with low power consumption, smaller size, and low cost, with the adaptability to take on new applications.
The semiconductor ecosystem partners would incorporate these designs into their own products. This new category they defined as Process IP. It is chip-less and fab-less and is as much about what they decided not to do.
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This strategy enabled neutrality with both the OEMs as well as prominent semiconductor players, and as we fast forward to today, the business model remains around:
- Upfront license fee. Partners can access tech and build their own chip designs;
- A royalty fee if any of the designs go into the final product.
“Ecosystem Partners” today now number over 1,000 companies, from foundries such as TSMC, Intel, and Samsung, to Operating Systems (OS, Android, Linux, Windows…).
Not only are they “across the entire stack”, but they drive joint problem-solving initiatives, where competitors can share resources and drive a mutually beneficial outcome.
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Arm’s CEO emphasizes this philosophy with statements like “We are the ecosystem of ecosystems”, and “We are the Switzerland of the electronics industry. We don’t try and pick the winners.”
If we dig a little deeper into Arm’s strategy and key decisions a few key areas stand out:
- A unique approach to “the problem” and innovation centred around it.
- How to continually push the design improvements of processing chips? And do this in a “fab-less” model and where they are not producing the final chip?
This has to be one of the greatest examples of a “lean start-up” mentality. This meant creating a unique business model and set of revenue streams. It meant creating an entirely new category and approach around Processor IP.
This was mapped and aligned to an ecosystem strategy from day one. The ecosystem is not only a major part of the solution but is core to both the company strategy as well as the unique category the company created.
As you consider your own ecosystem, what strategy and business model will be at its heart? Arm’s is a “co-opetive” model that enables players to simultaneously compete, yet cooperate on very defined initiatives of GTM steps.
While there are other permutations, the four most prevalent models to consider are:
| Model |
Dynamics |
Example |
| Symbiotic |
Customer fulfilment requires close cooperation and integration. |
SAP |
| Marketplace |
Platform/infrastructure for open marketplace and transactions. |
Alibaba |
| Co-opetive |
Players compete in the market, but the Ecosystem provides value for participation in it. |
Arm |
| Value Chain |
Domain expertise and value at key junctures, enabling customer fulfilment. Competition at these points of delivery. |
Tesla |
This means that Arm plays a key role and responsibility as the Ecosystem Coordinator. It requires a huge level of focus around it. It is as much as “what we will not do” as what we will do. At many junctures, the Arm management team made decisions to not pursue an attractive revenue opportunity that would taint the ecosystem messaging and positioning they had carefully built up.
And if you take a look at Arm’s messaging/positioning, campaigns, partner assets, and events….they put in an extraordinary amount of effort around maintaining and deepening the ecosystem. This has to be a big part of your thinking and resourcing. Consider how you will consistently monitor and assess your ecosystem and its constituents. Build an ecosystem tracking and optimization capability from the outset.
Arm has also consistently delivered a compelling Blueprint as the category leader, showing where and how technology and innovation will evolve. This is sometimes available products and solutions (or GA soon), but also products not built yet.
By showing this clarity of vision, and showing the Blueprint into the future, it demonstrates their category and ecosystem leadership. It plants a flag before other players do, and Arm is the one seen leading and innovating. Just take a look at their roadmap today with Cloud, AI, and Automotive as clear areas of innovation and focus.
And finally, think about how consistently Arm has communicated their point of view around this problem they are solving, and the ecosystem and unique category that has been created. It is not a tagline or short-term initiative. It is intrinsic to who they are and what they stand for.
One of the obvious, key rewards for this is the huge valuation attached to their upcoming IPO
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