This wasn't a new insight by Arc. ChromeOS exists. Palm's WebOS was a thing. Even Apple pitched rich web apps as the avenue for 3rd party developers to make things for the original iPhone, they were just a bit too early. There is even Electron, for web apps to run as desktop apps on all major operating systems. Most browsers can also turn any website into a self-contained web app that lives along side other local apps.
I don't think Arc ever realized their vision. They gave some cryptic ideas of their vision for the future of the web, but I don't feel like they fundamentally changed anything. I was expecting Arc to eventually get to a place where I could login to Arc on any computer and have my home session, always up to date anywhere I was. Of course, this idea would have been a lot better in the 90s or 00s when computer labs were more common and everyone didn't have a computer in their pocket. The value of a cloud OS isn't as appealing as it once was.
In terms of growth flattening out; they threw in the towel too early. It was only after they stopped adding new features and decided to give up on Arc that it seemed to really start to get traction. I was seeing blog posts and YouTube videos left and right about Arc, all while knowing that it was effectively dead, but the memo never made it to the people who just found it and were sharing it like crazy. A new browser from a new company, that piggybacks on the browser that already has 70+% marketshare isn't going to take over the world in a few years. It was a long play and they were too impatient, and had already given up by the time they started to get some real traction outside of the early adopter space.
I remember when Firefox really hit the mainstream. Friends would see friends using IE, and push them out of the way to install Firefox. It felt very grass roots, but it worked... it just took time.