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It is not every day that you see the 6th richest man in the world thank the 16th richest man in the world for accepting his $5.7 billion investment into the latter’s company - a deal which propelled the latter to become the richest man in Asia by increasing his net worth by $4.1 billion. Whew!
So Facebook is investing $5.7 billion, the largest FDI in the technology sector in India, for a 9.99% stake in Jio Platforms, a wholly-owned subsidiary of Reliance Industries that houses apps like Haptik and Netradyne, ecosystems like JioNews, JioSaavn, and JioTV, and most importantly, Reliance Jio Infocomm Ltd. — the biggest telecom network in India. This is the largest investment for a minority stake by a technology company in the world.
In today's post, we analyze the benefits of the deal for Reliance, understand what it brings to the table for Facebook, and finally deal with the grey areas and potential hiccups for the deal.
Let’s unpack the reasons behind all this hullabaloo around this deal
● Welcoming conversational commerce to India: Facebook-owned WhatsApp has 400 million users in India, its largest market in the world. WhatsApp has been enabling businesses around the world to reach out to users to notify them about their transactions. However, it has not made much headway in India, not for the lack of trying. Mukesh Ambani, the CEO of Reliance, has already announced his ambition of competing with Amazon and Flipkart through JioMart, a digital commerce platform for connecting all retailers across India. WhatsApp provides the perfect channel for JioMart to acquire customers while WhatsApp gets to monetize chat and enable payment for commerce for all retailers on JioMart. And the entrepreneurs on the Facebook marketplace will have a larger platform of consumers to target. A perfect win-win.
● Data is the new Oil: How has Google created such a monopoly? Google captures data about users from Android and Youtube, creating perfect user cohorts for advertisers to target, causing advertisers to flock to Google Ads. Google pushes the relevant content generated by these advertisers on its tech real estate, thus bringing in more users - the perfect virtuous cycle. With coming together of location data, more localized insight into the consumption pattern of Indian customers and content platforms brought in through the Jio ecosystem and advertisers and ad-infrastructure brought along by Facebook, the Jio-Facebook duo might just give Google a run for its money in India.
● The Debt Cleanup plan: Jio has incurred huge debts in its bid to become the largest telecom player in India. However, Mukesh Ambani had promised shareholders to make Jio debt-free by March 2020. To achieve this Reliance has already carved Jio into three parts - The tower infrastructure and all the debt that came with it, the fiber business, and Jio. Yet Jio was still left with a debt burden of about Rs 40,000 crores. The Jio-Facebook deal might just be useful in cleaning up the debt still on Jio’s books. For all this, Facebook gets a foothold in the second largest telecom market in India which is on the verge of becoming a duopoly.
● A super-app in the making? In spite of integrating UPI into its app in 2017, WhatsApp has been struggling to get WhatsApp payments off the ground due to data localization issues. JioMoney has also struggled to get traction in India’s crowded fintech market. Merge both of these, combine the commerce through chat and tap into WhatsApp’s acceptance in India - and we may have India’s WeChat in the making. The network effect from WhatsApp and Jio subscribers can unlock plays across commerce, payments, entertainment, gaming and VR. The possibilities are endless
Is everything so hunky-dory?
While it is easy to look at the future with rose-tinted glasses, there are still a few questions that need answering
● Anti-monopoly raising its head: This deal could be closely scrutinized by India’s antitrust watchdog CCI, given that Facebook and Jio have private data of millions of Indians, which may give the combined entity undue advantage against rivals, such as Google, Amazon, or local startups.
● Giving preference, are you? Facebook has already faced pushback from Indian regulators in its bid to introduce Free Basics in 2016. The deal with Jio might again raise questions around giving preferential treatment to Facebook or WhatsApp on its network.
● The fight over data laws: Facebook could find itself sparring with Jio in policy debates over how data is collected, stored, and shared in India. Reliance has always been a promoter of data localization while Facebook has supported open data flow across countries. Last year, Jio told TRAI that all OTT platforms should give full data access — including decryption keys — to Indian law enforcement authorities and enable traceability. However, Facebook-owned WhatsApp has been fighting off requests from the Indian government for tracing the origin of messages citing end-to-end encryption to prevent compromising user privacy.
With so many permutations and combinations possible, it will be extremely interesting to see how this deal defines the future for Indian consumers.
About the Author: The post is written by our EZPP Partner Abhirup Roy with relevant edits from our editorial team. Abhirup is a graduate from IIM Ahmedabad and works with Zolo Stays.