This week’s podcast is part of a deep dive into Arm Holdings.
You can listen to this podcast here, which has the slides and graphics mentioned. Also available at iTunes and Google Podcasts.
Here is the link to the TechMoat Consulting.
Here is the link to the China Tech Tour.
Here is my summary of the 4 big digital concepts behind Arm Holdings:
- Standardization and Interconnection Network Effects
- Indirect Network Effects by linkage with Operating System Innovation Platform
- Economies of Scale in R&D
- Switching Costs, including Criticality with Semiconductor and OEM Companies
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Related articles:
- A Strategy Breakdown of Arm Holdings (1 of 3) (Tech Strategy – Daily Article)
- 3 Digital Concepts Powering ARM Holdings (2 of 4) (Tech Strategy – Daily Article)
- Ant Financial Is 3 Platform Business Models Combined. (Jeff’s Asia Tech Class – Daily Lesson / Update)
From the Concept Library, concepts for this article are:
- Semiconductors
- B2B Customer View: Necessary vs. Critical vs. Strategic
- Switching Costs
- Economies of Scale
- Standardization and Interconnection Network Effects
- Indirect Network Effects
From the Company Library, companies for this article are:
- Arm Holdings
- Masayoshi Son / Softbank
Photo by Vishnu Mohanan on Unsplash
—–Transcription below
Welcome, welcome everybody. My name is Jeff Towson and this is the Tech Strategy podcast from Tecmo Consulting. And the topic for today, the four digital concepts that are powering Arm Holdings. Now Arm Holdings, Arm, I mean this is old school, 1990 founded, software giant that has been throwing off pretty good cash flow for over 30 years. It’s on 99% of all smartphones in the world. It’s right, you know, it’s just central, foundational, technical architecture globally, pretty amazing. Went private with SoftBank in 2016, 2017, and has recently gone public again, so you can find it on the NASDAQ now. Anyway, super important company, and some really great strategy lessons in this one. Like, if you can understand how it’s so. powerful for so long. Great strategy stuff on this one. So that’ll be the topic for today. And we are kind of doing the new format, which means I’m going to keep these shorter, hopefully 30 minutes. And I’m going to alternate between sort of a digital strategy lesson, which I did last week and a deep dive into some companies, specifically their strategy. And that’s what we’re doing today. Anyways, that is the topic for today. Standard disclaimer, nothing in this podcast or in my writing or website is investment advice. The numbers and information for me and any guests may be incorrect. The views and opinions expressed may no longer be relevant or accurate. Overall, investing is risky. This is not investment legal tax advice. Do your own research. And with that, let’s get into the topic. Okay, now to keep this to 30 minutes, I’m gonna have to move. pretty quick. I could have cut down the concepts to like two, which I thought about, but it is kind of important to have a complete look at what is really powering this company, and it’s four things. So that’ll be, I’m just going to move quick. That’s my solution. We’ll start with the three-minute sort of update on tech events. I only have really one tech event for this last week that caught my attention, which is the one that caught everyone’s attention, which was the Palace Coup at OpenAI. Suddenly, one of the most important companies in the world, the foundational company for generative AI, has some sort of hinky shenanigan happening at the board level. Everyone knows the story. Sam Albin got kicked out, then a new CEO came in, then another CEO came in, then Sam’s back. Microsoft, it’s crazy. I won’t go through the details. I think people know that. My only point on this was really… Like, first of all, anytime a company positions itself as a nonprofit in tech, man, all of my radars fire. I’m like, what kind of shenanigan are you pulling here? Like, I’ve been on three nonprofit boards in my life. I can’t, a lot of hinky behavior happens. Once you remove the customer, once you remove shareholders, once you remove short sellers, once you remove SEC, man, people can pull, I mean, you wanna do something like, sort of disreputable and evil in this world, do it in a non-profit, like, sort of a lot of bad behavior. So anyways, that struck me as kind of, yeah, what are you trying to pull here with a non-profit structure? And then, the other one was, I think we got a quick preview of the future. Imagine that OpenAI had already gotten to artificial general intelligence, AGI. You know, the thing everyone’s afraid of, the singularity, the turning point where we have AI that is, you know, running parts of the world and its own thing. Imagine when we get to that point, imagine if there was a sort of board fight then. The stakes would have been dramatically higher. I think we got a bit of a preview of what the future’s gonna look like when you have these incredibly powerful resources. that a small number of people control. And there’s gonna be a lot of these sort of backroom, devious fights to get control of, in many ways, the ultimate source of power. So yeah, imagine the stakes if AGI existed and was controlled by OpenAI and then this had happened. Who’s gonna control it, right? Anyway, that was kind of my take on that, which is this future is gonna be a lot of this. Anyways, that’s the only one I had that caught my attention this week. Alright, let’s get into the content here. Now Arm Holdings, as mentioned, founded in 1990, based in Cambridge. Joint venture originally between Apple, Acorn Computers, which was basically a computer company that was making chips. The whole point of this is CPUs, not semiconductors, but CPUs, which are obviously chips that have processors in them. as opposed to chips that don’t have processors, memory chips. Okay, CPUs in the 1990s when Apple was trying to go for their Newton computer thing, you know, the little handheld first attempt at what eventually would be the smartphone. And they needed certain CPUs to run on a smartphone, or in this case, the Newton, that had to have certain characteristics. And the three everyone always points to is like, the CPUs have to be high performance. Right, all of the US China stuff you hear about like, oh, the US cutting off China from this or that. It’s always about high-end, high-performance CPUs. And the group that gets hit the most is kind of smartphone makers, because that’s where the frontier is. So high-performance, very power efficient. And then if you’re a designer or maker of chips, let’s say Nvidia, Qualcomm, Intel, it’s gotta be sort of easy to use, very scalable. And it was, that was the idea, to build something based on this using the RISC architecture. And that basically got you ARM, which ended up writing the ISA, this sort of instruction set architecture for when you make chips. For those of you who aren’t familiar, and this is, I don’t usually go this deep into sort of the tech stack. I mean, it’s kind of a different world, but whenever I think about… the center of everything digital. It’s three things kind of working together. It’s the actual semiconductor. It is the operating system, usually an Android or a Microsoft or whatever, that connects that chip with tons of applications. And it’s basically the ISA. It’s the instruction set, the firmware, that tells the chip how to function. And those things, you can’t really separate them. I think it’s one thing. It’s like three different companies are making different parts of a combustion engine, but it doesn’t work as an engine unless all three parts are there. That’s kind of how I always view it. I mean, this is really the core engine of everything digital is these three to four types of companies all working together tightly integrated to create one thing, which is in this case, a CPU with an ISC that developers can write on and operating systems and firmware can run. you know, that’s the engine. Okay, we kind of knew this for PCs. People used to talk about Wintel, Windows and Intel, again, joined at the hip. Well, this is the same thing, it’s just for smartphones. And really any smart connected device. It began with smartphones, but from there, it went to any smart and connected device. And, you know, there’s a question of whether we’re gonna see a new sort of structure for let’s say, smart cars. Is it gonna be a new type of operating system, a new type of chip, a new to all of it? Are we gonna repeat or not? So anyways, when we talk about ARM, we’re looking at sort of hand in glove with the people who make semiconductors, Qualcomm, NVIDIA, that’s more GPU, Intel and such. The people who create the operating systems and the apps that run on these things, so that’s Android, iOS, and then to some extent, the smartphone makers themselves, OPPO, Vivo, Xiaomi, they may be sort of buying, in one sense, ARM’s primary customers are the people that make semiconductors, right? It gives them the tool to create their semiconductors, which they sell, but to a second degree, it’s also sort of the OEMs, like Vivo and OPPO, who just wanna buy stuff off the shelf. They aren’t making semiconductors themselves, but they’re using. Okay, so you can kind of say, look Arm is sort of hand in glove in that core team that’s the center of everything really. And their primary customers would be the semiconductor designers and then, you know, secondarily the smart connected device makers, the OEMs like Xiaomi and so on. And, you know, it goes with smartphones and then it became sort of tablets and more devices like that. But really, when you look at it. Arm became so big it’s because they got all of the smartphones of the world a massive global secular trend the adoption of smartphones they’re in 99 percent of them okay now against that sort of product offering that they’re you know selling to these groups there’s probably two important factors to keep in mind And for those of you who are subscribers, I’m sending you kind of a lot about this week. I already sent you one article. I’m gonna send you two more all about sort of deep dive into ARM. But the short version is like against that sort of product offering, there’s a couple things to keep in mind. Number one, this is not really just a product. It’s a product plus an ecosystem because these companies have to work so tightly together in… They have to integrate their design, they have to integrate their research, and obviously their operations are completely integrated because this stuff all has to work together. So really when you look at Arm, they are working every day with obviously the semiconductor companies, the Intel, Zinibidias, Qualcomm. The semiconductor supply vendors, these are people who also sell tools to these companies so they can create their products. Foundries, TSMC, Intel. But also, you know, there’s the EDA companies, the design automation tools that these companies use to design their chips. That’s Cadence is the one people always talk about. Then against the operating systems, the Linux, Android, Red Hat, Amazon, and then ultimately everyone who writes apps that runs on top of this stuff, like Adobe, Microsoft, and whatever. So, you know, it’s really the ecosystem that all works together. They are a product plus ecosystem company. That’s really what they’re selling. That’s point number one. Point number two, the frontier of this keeps moving. Every year, these chips have to get, there’s two big pressures. You have to sort of move up, well actually move down. Seven nanometers to five, five nanometers to three. Every time they move forward, the cost goes up significantly. and the complexity goes way up. So there’s a rapidly advancing tech frontier that ARM has to stay on. And you wanna stay on it. One, if you don’t stay on it, someone else might offer it. But as things get older and more widely used, they become commodities. You wanna stay on that frontier so that even if your competitor copies you, they’re three years behind you, which is kinda what TSMC and these others do. Okay, so those are the two factors. So am I doing on time? 10 minutes, perfect. All right, let’s get into the concepts and just get to the so what. Why are they so powerful? Four big digital concepts. Number one, standardization network effects. The phrase I use is standardization and interconnection network effects. If you go to the concepts library on the webpage, you can click on that, there’s a bunch of stuff on it. Basically, you can have network effects without having platform business models. If everyone in Thailand speaks Thai, it’s better for everyone. The language becomes more valuable the more people use it. That’s a network effect. More people speak Chinese in China, the more valuable it is for everyone. You don’t have to teach 20 different languages. So the training costs are less. But really the value of this is… When you standardize something, it’s about how many people use it. So a lot of people speak Chinese. That is a more valuable language. The network effect is more powerful than a much smaller number of people speak Cambodian. Okay, so the more people you have network effect, the more valuable the language becomes. The other factor, which I think people don’t pay attention to, the more interaction there is, the more valuable it is. Now languages you speak all the time with people. You write, you speak, you might create media, you might broadcast media. The more interactions you have, that’s really where the value plays out. That’s where you save money, that’s where it becomes more efficient. You don’t need translators, you don’t have to put things out in 10 different languages because everyone speaks the same language. Okay, when you look at the risk architecture, at the center of CPUs, the amount One, the number of people is huge. It’s the whole world’s smartphones. So the volume is massive, but also the pure volume and complexity of interactions is so great that this is like a really powerful network effect. It’s not like there’s a couple interactions here where the operating system is occasionally pinging the chip or, no, it’s all. working together every second of the day. So a huge number, which digital is really good at. I’ve kind of said this before, like when you start to go digital as a business, one of the things you want to lean into is you want to lean into the stuff that digital can do better than other things. One of the things digital does well is it’s very good at connectivity. You know, an average person might talk with a couple hundred people. A piece of software can talk to millions of other pieces of software. So you want to lean into connectivity and interactions. Well, that’s what’s happening here. So the network effect that comes from standardization and interconnection is huge. I mean, that’s, this is the number one thing they have going. Their architecture is what everyone uses. All those vendors and developers, software developers, app developers, firmware developers, operating systems. They’re all interacting with this instruction set all the time. So that’s a huge competitive advantage. And that’s why kind of the number one metric when you look at a company like Arm, in my opinion, you look at market share. That because the power of your network effect depends on market share. It doesn’t depend on revenue. And I’ll… Well, I’ll write about this. Those of you who are subscribers, I’m going to write about the China situation with Arm. And people talk about, well, they’re going to lose their revenue from China, which is about 20-25% of their revenue, because of political stuff. No, the number one issue with China is you’ve got to keep everybody in the world using this. It’s a market share is what matters, because that’s where your network effect comes from. If you have to give it away for free, you give it away for free, and forget the revenue. So when you look at it this way, you kind of recognize, okay, the revenue is important, but no, we’ve got to keep the market share of China, can’t lose it. Okay, so that’s kind of number one. You know, for those of you who’ve read sort of my Motes and Marathons books, I’ve put a lot in there about network effects. I mean, there’s two chapters on network effects. There’s different types. I usually say there’s three types. There’s a direct network effect, there’s an indirect network effect, and then there’s the standardization network effect. This is a global standardization network effect. It’s really, really big. Anyway, so that’s big concept number one. Big concept number two is kinda related, which is… You know, one of the network effects we point to a lot is an indirect network effect on an innovation platform. So Microsoft Windows is an innovation platform. Android is an innovation platform. iOS is an innovation platform. You know, you are the system that connects people who create apps with people who use apps, right? So that’s your app store on your smartphone. Okay, that’s an operating system that is basically an innovation platform and it has an indirect network effect. The more people that use iOS, consumers, businesses, the more valuable it is to the app developers. So they create more apps and the more app developers there are on iOS, the more valuable it is to the consumers and the users. Indirect network effect. Now, ARM doesn’t have that directly. It mostly works for a fairly small number of companies. However, As mentioned, they are really joined at the hip with the operating system and the App Store. That’s why it’s Wintel, right? It’s Windows plus Intel, and then the ISA is in there. And it’s the same for smartphones. So really, there’s an indirect network effect there that ARM is basically piggybacking. You might say, oh, it’s a separate company. It’s the Google Play Store and it’s iOS. Not really. I mean, they are so tightly integrated. I view it the same way as sort of PayPal got its start on eBay. Right, it wasn’t that PayPal sort of just emerged as a payment system between people. sending and receiving money. No, they piggybacked eBay because on eBay you had a bunch of merchants selling and a bunch of people buying and this piggybacked right on top. This is the same thing. They are really sort of benefiting from this very powerful network effect, an indirect network effect of an operating system because you can’t really separate them. I think it’s pretty much one thing. It’s just being done by a couple of companies. So that is sort of big strategy thing number two, big concept number two, there’s an indirect network effect coming from the operating system that reinforces their standardization network effect. And for both of those, being first to the market really mattered. If you’re gonna do a standardization network effect, you gotta get there first. And they did, they were 1990, they were perfectly positioned at, you know. Good 10 plus years before smartphones started to take off, really. So yeah, both of those depend on sort of first mover, usually. Once that happens, it’s pretty hard to break in. OK, number three, economies of scale in basically R&D. If you look at the income statement for ARM, it’s pretty simple. There’s not a lot going on there. The revenue tends to be, it’s about $2.6 billion annually for 2023. So this is not a huge tech company with hundreds of billions of dollars. No, this is a smaller tech company that’s in a really great niche. So. $2.6 billion, they were 2.7 last year, 2 billion the year before. They sort of trend in that area. The revenue tends to be a little, I mean the revenue basically comes from two sources. They go to people who make semiconductors and they license them access to their library and you can start using their library to try and design chips. Because you try and error and you do a lot of stuff. So there’s a license fee to get access. And then when you take a certain chip to market, and manufacturing, then they get royalties based on every chip produced. Now there are limits and there are minimums and things, but that’s basically it. It’s a pretty spectacular business model, because there’s not a lot of assets here. I mean, you’re basically just creating intellectual property for the most part. So, you know, on their balance sheet, there’s not much. And, you know, these things last a long, long time. where you can use the architecture in a chip that’s sold five to ten years later and you still get in checks. It’s a bit volatile, the revenue, but it is fairly predictable over the long term. Now, okay, so you got $2.6 billion revenue for 2023. Their gross profit is basically all of it. It’s 95%. So the only really expense that jumps out at you is against that 2.5 billion of gross profit. 1.1 billion was R&D. So 42% of their revenue was R&D for 2023. And that’s basically what they are. They’re a big room full of engineers who are thinking stuff up and writing intellectual property which then they license and sell. Okay, if you have global 99% market share of smartphones, you know, one of the ways you beat your competitors is you outspend them on the key strategic activity which is researching the next generation. of smartphones. That’s why that frontier part is very important. If there wasn’t a rapidly advancing tech frontier, your economies of scale and R&D wouldn’t be as powerful. But things would become commoditized, smaller groups would be able to replicate you. But no, if it’s about outspending the other guy on what the two or three nanometer ISA is going to look like. You know, and then whatever comes after that. So that rapidly advancing frontier is a big part of their economies of scale, is they can outspend their competitor in what I would call a strategic capability. You really wanna maximize your spending there. And if you look at sort of the last three years, their R&D expense was 42% of revenue this year, 37 last year, 40 the year before that. That’s their big strategic lever they’re pulling. And outside of that, they don’t really have any costs. The other thing to think about in economies of scale is it’s hard to do big spending if your revenue is not predictable. This is one of the reasons Netflix has an easier life than let’s say Disney. Cause, well not Disney, let’s say Paramount. Because Paramount doesn’t know how much money they’re gonna make next year. Maybe their movies will hit, maybe they won’t. Netflix has a nice subscription model. They’ve got a lot more predictability over the next couple years of revenue. That enables them to make larger strategic bets. You can bet 40% of your revenue if you’re pretty sure that your revenue is gonna be about the same next year. If your revenue could be half next year, which can happen in movie business, it’s hard to bet 40%. So that sort of predictability lets you make longer term bets. Or if you have another ancillary business that’s sort of a cash machine, you can make bets. But yeah, they have that. So they’re real strong on this. And the other thing you think about is how many people really know how to write ISA, this sort of architecture in the world? It’s like semiconductors. It’s not that big of a pool of people who know this stuff. So if you look at sort of the fight to get into foundries in Taiwan, mainland China, South Korea, it’s a lot about fighting for a very small group of engineers who understand how to do this stuff. So your economy skills, they’re more powerful when it’s a specialized skill that’s pretty rare. So in a couple ways, their economies of scale, pretty impressive. If you read their 10K and stuff, the management will point to this on a fairly regular basis. Okay, so that’s number three, which brings me to the last big concept, powering arm, and that is B2B switching costs based on criticality. Now, if you go on my webpage and look up criticality, you’ll see multiple businesses I’ve talked about. Almost all of them were Warren Buffett investments. based on this exact same idea. And I actually did a podcast on this, let me tell you the number. Podcast 85, which was titled, Switching Costs, WAPCO, and Buffett’s Critical Companies. There’s a company he invested in, and I’ve teached this at business schools sometime about a company called WAPCO. And WAPCO is a critical supplier to the truck industry, particularly in Europe. And you know within the truck industry, the big trucking industry, the big rigs, right? There’s a lot of parts, a lot of suppliers, but there’s a couple of suppliers that would meet the definition of critical. And I’ll give you some, I have some checklists for that, but what WABCO makes is basically the brake systems. Because if there’s one part you can’t have brake on a big rig going down the highways of Germany where the safety rules are quite high. it’s the braking system. And the brakes are becoming increasingly smart, increasingly electronic. And this company has been making those braking systems for about 100 years. And they’re hyper specialized in just that. They actually look a lot like Arm in terms of their staffing. They have some manufacturing, but it’s mostly a team of engineers doing R&D on this one specific but critical. Supply. Okay, now. Why would this be a switching cost? It’s not that it’s just that it’s critical. It’s that, here’s the way I think about it. Let’s say you’re the buyer. Well, first of all, before we get into it, let’s say, is there a switching cost if you put in ARM architecture in your chip designs? Yeah, because it’s modular. you put in one component when you start adding other components like building blocks to build more complicated chips, you’re going to build on what you already did. So once you kind of sign up with Arm, you’re kind of with them. It’s very hard to switch. Your people are all trained in this particular language. They all know it. You’re building on it. You’ve probably customized it a bit. So there’s a lot of what we would just call basic switching costs. which is pretty standard stuff. But beyond, and also there’s a degree of interoperability. So let me break this into three sort of sub buckets. Number one, okay, there’s just basic switching costs. Once you install this in your products and you start building on it and training your people on it, that’s a basic switching cost. Hard to go to someone else. Number two, between arm. and the semiconductor makers, there is a degree of operational integration. You go to the semiconductor companies, you’re going to find armed people there because they’re all developing the next generation, so they all have to work together all the time. So there’s operational integration in the development phase. And then there’s this third bit, which is the criticality bit, which is, the way I think about it is imagine you’re the buyer. for a Qualcomm or a Xiaomi, something like that. And you sort of look at all the things you have to buy to build your product. And I always put those into three buckets. I say they’re sort of. strategic, critical, or necessary. When I go through my checklist, this is always what I’m looking for, strategic versus critical versus necessary. A necessary cost is just something you need, you gotta buy it. You don’t want a piece of garbage, but you’re always looking to do it a little cheaper because if you can get 5% off, great. That’s tables and chairs and cement. You know, it can’t be garbage, but if I can get 3% out of my… you know, chair manufacturer, I’ll squeeze for three. Strategic is something like the R&D cost we just talked about. This is not one you wanna minimize, this is one you wanna maximize. Because the more money Arm spends on R&D, the more strength they have versus competitors who can’t match them, strategic cost. But there’s a third bucket which I call the critical cost, which is, look, we need this for our product, and if there’s an issue, it is going to have an impact on us beyond the fact that I bought one table that was not good. If I buy one table and it sucks, it costs me the price of the table. But if I buy something like a bad engine, let’s say I’m an airline and I’m buying engines from Whitney Pratt or whatever and there’s a new company that says we’ll send you the engines for 10% less. Okay, I could save 10% and if you were selling me my tables, I would probably try. But what if there’s something wrong with that engine? What happens? What is the cost of using a cheaper product and then having a problem? Maybe it’ll just hurt my reputation. Someone had a bad experience in my restaurant. Maybe it’ll lose me clients. Or does it wreck a larger project? If you buy a cheap roof for a, let’s say, townhouse, and it turns out it’s 10% cheaper, but it turns out it leaks, well, you didn’t just wreck the roof. That probably went through the whole house. So the cost is beyond just the roof. Could it hurt people? Well, the plane could crash, that’s a thing. If you have a… Are you gonna get a 10% cheaper pacemaker put in? Probably not. Could you lose, if something goes wrong with a cheaper product and you have a problem, could you lose the entire company? If you’re an airline and you have two to three airplanes crash in two years, you’re pretty much out of business. You’re done. Super critical. So you can kind of look at it that way. Okay. There’s not that level of problem. If you make semiconductors that have a problem because you’ve tried to use something a little bit cheaper. Okay, you basically have faulty chips that would be buggy. Planes aren’t coming out of the sky, but you’d have faulty chips and it’d be buggy. You might lose your market share, which is critical. The developers might get annoyed at you and start to look for alternatives. Yeah, there’s for these semiconductor makers who are investing so much money. there is a degree of criticality in who you partner with for the inner workings of your product. Okay, it ain’t airplane. WABCO, if you are a major truck maker in Germany and you decide to go with another company that makes braking systems and you save five to 10%, is it worth it? if trucks start to crash? Or is it worth it just because you’re gonna have to worry and you don’t know if it’s as good? Risk can be real, the truck could crash, or risk could be perceived, it might crash. The perception of risk is enough to say I’m not doing this to save 5%. So you just wanna look at the degree of criticality. You look at… Okay, I’m going to go with company B and save five to 10% instead of the normal company I deal with. Can company B actually prove to me that they’re good? And sometimes they can. If you have a new drug and the FDA approves it, you are proven to be as good as the existing drug that maybe you’re using. How do you really prove if you’re, this is a Warren Buffett company, he invested in the company that makes the airframe for big planes like Boeing, the frame that runs along the length of the airplane, the structure. How could you possibly prove a new company is as good as the current one? I mean, these things have to last 20 years. You can do some basic tests, but. until this thing has flown for 20 years you really don’t know the degree of degradation that’s going to happen. So some companies it’s impossible to prove that they’re as good, some you can prove. And then the third thing you think about is okay given that’s my risk what do I save? Is it worth it? And this is where ARM is quite powerful. One there’s a degree of criticality here. It’s a rapidly advancing technological frontier. We need to have their architecture in there because that’s what we’ve always used and it’s always worked and everyone works with them. So there’s a degree of criticality. And then if we decide to switch and take on this risk, how much do we save? Well. I mean, I just basically said ARM’s revenue is only $2 billion versus the $100 billion. The overall smart devices marketplace, the total addressable market according to ARM is about $200 billion per year. ARM isn’t about 50% of that, $100 billion, which is smartphones and stuff. Within all of that, there’s still only 2%. It’s not worth taking on critical risk to save 1%. And that’s the equation I always look for and that’s the Warren Buffett equation. Look for something that’s a B2B critical product. There are different degrees to criticality that represents a small percentage of the actual cost of the product. Nobody’s gonna take on catastrophic risk to save 1%. It’s just not worth it. And that’s kind of the sweet spot I think he goes for. I put arm in that category. It’s just not worth it. We’ll pay the 2%. Actually, their revenue is 1.7% of the market they’re in. They’re a small piece of what is spent developing semiconductors. Anyways, I really like that type of business. So that would be kind of the last bit for today. B2B switching costs based on sort of operational integration. existing usage and then the perception of criticality by the person doing the buy. Okay, 34 minutes, I’m just about on time. Anyways, I’ll put those in the show notes. Those are four concepts. For those of you who are subs, there’s gonna be a lot coming on ARM. As mentioned, I’m gonna go between digital strategy lessons and sort of deep dives on companies with about 50% of the companies now being in the US. and 50% being China, Asia. So that will be it for today. I hope that is helpful. As for me, another good week. I’m getting ready to head to the United States for the holidays. So I’m sort of excited about that. Looks like it’s gonna be the US, Mexico for a week or two. And then I’m not sure. I think I’m in the Philippines for a couple weeks after that. We’ll see. So anyways, getting sort of mentally ready to get back on the road. Any fun stuff I saw Napoleon Yesterday Kind of mixed feelings about it to tell you I kind of mixed feelings because I really like French history I don’t know why but I like I read a lot about it for some reason like that and animal documentaries are kind of my thing total not really sure why that is but So when Ridley Scott, who’s like my favorite director, did Napoleon, I was like, oh, this is gonna be good. This is Black Hawk, he did Black Hawk Down, he did Alien, Blade Runner. I mean, like half of my favorite movies are by Ridley Scott because they’re very cinematic, gladiator, sort of sweeping. So when it was about Napoleon, I was like, oh, this is gonna be great. And visually it was amazing. Like it was really cool to see that sort of world portrayed. The part I couldn’t get past was Joaquin Phoenix as Napoleon. And I kind of had the same problem with the Joker. Because everyone’s like, oh, he’s a great actor, which he clearly is, right? And he’s very good at sort of being mentally disturbed. Like he’s totally believable as like, you know, mentally disturbed Napoleon or mentally disturbed the Joker. Totally believable. But then at the same time, he’s supposed to be a genius. He doesn’t come across to me as a genius. Like in the Joker, he didn’t come across to me as like mentally disturbed guy running around. Oh, and by the way, he’s going to be the greatest, you know, criminal mastermind anyone’s ever seen. Like he didn’t really come across like a smart guy. That was kind of my problem with Napoleon. He’s like really interesting to watch and sort of mentally disturbed. And then like, wait, he’s the greatest general in hundreds of years. This guy who can’t really talk very well. So I don’t buy the whole he’s like some sort of genius thing. Anyways, I don’t know, that was just sort of mixed feelings. I’m curious what the French are gonna think about it. Because obviously huge for them and visually it’s fantastic. I’m curious what they’re gonna say about Joaquin Phoenix being this sort of strange version of Napoleon who’s a bit. mentally unstable and he kind of comes across as not that bright in most of the movie. Josephine, his sort of love life, she’s actually far more interesting I thought. Anyways, I would definitely see it but I thought it was kind of weird. Anyways, I see everything Ridley Scott makes so that was my evening. Anyways, that’s it for me. I hope everyone is doing well and I will talk to you next week. Bye bye bye.
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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.
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