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Facebook-Jio deal | A deal that can change the e-commerce space

The Jio-Facebook alliance should trigger healthy rivalry and transform digital economy, benefitting all stakeholders

May 11, 2020 / 01:11 PM IST

Amid widespread speculation about life after lockdown, a $5.7-billion deal is betting big on the digitisation of essential retailing in the post-pandemic world.

While Facebook’s investment of Rs 43,574 crore in Jio Platforms, a unit of Reliance Industries, for a 9.99 percent stake hogged limelight for its width and breadth of possibilities, the cornerstone of the cross-border agreement is the big push it will provide to hyper-local commerce.

According to Hari Menon, co-founder and CEO of BigBasket, more and more consumers will shop online rather than depending on traditional means after COVID-19. Within e-commerce, online grocery will see a huge boost, he said.

Jio Platforms has sniffed this opportunity early — through its app JioMart, it has already started on-boarding local mom-and-pop stores (or kirana stores) to give shape to its hyper-local e-commerce model.

The deal with Facebook now gives JioMart the scope to combine with WhatsApp that would enable these kirana stores to digitally transact with customers.

The JioMart platform mounted on the encrypted Whatsapp platform will allow traders and customers to move on to a more efficient payment system that can offer credit to both customers and shop owners on a non-cash, bank/financial institution-driven model.

The overall reach of this combination can be gauged from Reliance Industries chairman Mukesh Ambani’s remark after the deal was announced. “In the very near future, JioMart, Jio’s new commerce platform, and WhatsApp, will empower nearly 3 crore small Indian kirana shops to digitally transact with every customer in their neighbourhood,” Ambani said. “This means all of you can order and get faster delivery of day-to-day items, from nearby local shops.”

If Ambani has his focus on kirana stores, Facebook co-founder Mark Zuckerberg has set his sights on small businesses. In a blog post, Zuckerberg wrote: “India has more than 60 million small businesses and millions of people rely on them for jobs.”

“With communities around the world in lockdown, many of these entrepreneurs need digital tools they can rely on to find and communicate with customers and grow their business,” he said. “We’re looking forward to getting started.”

According to both the companies, the purpose of the deal is to come up with digital-based solutions for 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector.

Such a broad sweep of an alliance naturally triggers concern about market dominance. However, the worry, at this point, seems a bit far-fetched as, thanks to our population, India’s market size is huge.

According to Menon, grocery is a $700-billion industry and e-commerce forms only 1 percent of that. The expectation is this 1 percent will become 20-30 percent in the future.

Buoyed by this expectation, the Confederation of All India Traders (CAIT), an association for offline retailers, is working with the Department for Promotion of Industry & Internal Trade to launch a national e-commerce marketplace for over 70 million traders in India. According to reports, Flipkart is working with 37,000 kirana stores as its local partners, while Amazon has rolled out a programme to bring thousands of small shops onto its platform. Metro Cash & Carry is digitising thousands of retail stores it caters to through its Smart Kirana initiative.

Such initiatives prove that the opportunity in e-commerce is so big that the big bang entry of JioMart-WhatsApp combine can only spur rivalry and not kill completion. That should be good news for all stakeholders.

Fintech mavens are worried that the Jio-Facebook partnership could upend the digital payments sector, crowding out small players and driving consolidation. However, India’s payments landscape is now at a point of inflection, aided by rapid smart phone penetration and millions who are joining the swelling ranks of middle class. The cross-border deal, therefore, offers positive spin-offs for small loan borrowers (both traders and customers) who remain outside the formal bank loan ambit. Instead of crowding out small players, the aggregation of traders through JioMart-WhatsApp will allow fintech companies to come out with new business models and product design to cater to changing spending habits. Given the rapid integration in both online and offline spaces, some of these fintech companies can become the instrument of choice for small payments.

The big guys in the payments space, such as Walmart-owned PhonePe and Paytm, have already swung into action. While Paytm is planning to partner over 10,000 local stores and small shops for hyper-local deliveries, Flipkart has pumped $28 million more into PhonePe to gear up for future competition. So even if the Jio-Facebook partnership upends the digital payments space, the churn is expected to be more constructive than destructive.

Being digital in nature, the alliance is bound to trigger concern about data privacy and net neutrality. Perhaps sensing the worry, Reliance Jio strategy head Anshuman Thakur has proactively made it clear that Reliance Jio Infocomm will not offer any preferential treatment to Facebook or WhatsApp on its network and remain committed to net neutrality law. Facebook India managing director Ajit Mohan, on the other hand, has said there is no aspect of data sharing in the deal.

If that’s the case, India’s competition watchdog should not have much of an issue with the deal. Once it clears the regulatory hurdles, the Jio-Facebook friendship has the potential to change India’s retail and e-commerce landscapes, much in the same way as Tencent’s WeChat has done in China.

Abhijit Kumar Dutta is a freelance writer. Views are personal.
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Abhijit Kumar Dutta is a freelance writer.
first published: Apr 29, 2020 09:09 am