Facebook Inc’s investment of $5.7 billion (Rs 43,574 crore) for 9.99 percent equity stake in India’s biggest telecom company, Reliance Jio, is a significant step for both the companies and their vision and ambitions for the Indian market.
Reliance Jio has proclaimed its vision of not only being a telecom player, but evolving as an end-to-end digital company catering to mass market in India, and being the biggest player in India’s digital economy. In just three years, it has managed to have a subscriber base of over 370 million users. Facebook has successfully emerged as the leading digital products company in India with high user engagement rates. According to a Mint report, WhatsApp’s India users stood at 400 million last July.
Both the companies, through this partnership, intend to roll out a commerce platform, JioMart. With the capabilities and the scale the duo are aiming at, this could turn out to be the biggest platform for commerce in India. This partnership is not only relevant and complementary for both companies’ vision and ambitions for this market, but also rich with implications -- both at macro and micro levels for various players across the industry and operating in India.
Impact On E-Commerce Players
The direct pressure of this partnership would be felt by both Amazon and Walmart for their India growth plans. Both have by and large focussed on metro and tier-1 cities and are yet to penetrate beyond the top 100 million users in India. Another market player that could be impacted is the third-biggest e-commerce player (in terms of number of users) in India, Club Factory – a Chinese e-commerce company that is popular in tier-2 towns and beyond. All these companies will have to increase their spend and expedite rollout plans to compete with JioMart’s distribution and execution prowess.
Impact On Tech Players
Among the Indian technology companies, the biggest impact is likely to be felt by PayTM and hyper-local delivery players such as Big Basket and Grofers. PayTM is one company that with its scale, reach, engagement rate and adjacent businesses and products is extremely well-positioned to evolve as a Super App. Now, with the Facebook-Jio deal and JioMart, that window for PayTM could be closing fast. Both Jio’s and Facebook’s technical capabilities, products, scale, engagement, brand recall and network effects are better positioned to develop a Super App for the Indian market.
In terms of scale of economies and operating costs, JioMart potentially has a significant advantage over hyperlocal delivery players. The cost of competing with JioMart would be high for these companies, and since they are private companies, their valuation would be under pressure for subsequent fund-raising rounds.
In December 2017, there were 17 Chinese apps among the Top 100 in Google’s India Play Store. By December 2018, that increased to 44. Chinese consumer Internet companies have entrenched and grown significantly in India, especially in sub-urban and rural markets. TikTok, with over 200 million users, is the most popular.
TikTok, Helo, Bigo Live, Club Factory, PUBG and the like have all managed to grow significantly in rural India, with little competition from either American or Indian counterparts. JioMart, with its focus across the length and breadth of the nation, is likely to put pressure on the Customer Acquisition Costs and Engagement Rates of some of these Chinese apps.
Macro, Geopolitical Implications
At a macro level, this can be viewed as an example of the improving US-India trade ties. It comes a few days after India revised its FDI (Foreign Direct Investment) norms that could impact a number of Chinese investments. For Chinese companies or funds to invest in a potential competitor to JioMart, or capitalise their existing portfolio (Alibaba-PayTM), or even start operations in India to potentially compete with JioMart, the latest norms make it all the more difficult.
We believe that Chinese players will now turn their focus on South East Asian markets (led by Indonesia), especially for private investments. We have witnessed some increased activity by leading American VC (venture capital) firms in that region in recent months, and they are well-positioned to gain big on their investments.
This partnership is primarily of complementary strengths — Facebook’s technologies and products, and Reliance’s distribution power. With WhatsApp potentially being at the front and centre of the JioMart platform, and with NLP-AI (Natural Language Processing – Artificial Intelligence) analysis, the potential user experience, service delivery and business returns could be potent and significant in terms of product and technical capabilities.
In terms of investments and acquisitions, too, both the companies have complementary assets such as Reverie Technologies - Machine-Translation based Indic languages digitisation platform company acquired by Reliance Jio in 2019, and Facebook’s investments such as Meesho (social commerce platform), Unacademy and BYJU’s (through the Chan Zuckerberg Initiative) — the last two in the EdTech space and whose current value during the pandemic could prove to be significant.
This partnership has the potential to deliver significant results for India across multiple domains. Vision and ambition aside, both the companies need to realise each other’s strengths and core competencies to deliver on their promise.
There are many lessons to be learnt from past mistakes where cross-cultural partners and focus on execution failed. One such opportunity lost has been NTT DoCoMo’s $2.7 billion investment in Tata Teleservices during the peak of the mobile telecom wave in India.
Jayanth Kolla, is Partner, Convergence Catalyst. Views are personal.Disclaimer: Reliance Industries Ltd., which also owns Jio, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.