Jio and Facebook — A Perfect Match?
By: Aakash Shah
Tags: Reliance Jio, Equity, Investment, Stock Market

Note — The article was originally published on my LinkedIn account on April 29, 2020. This is a re-post of the same.

The Deal

Facebook acquired a 9.99% stake in Reliance’s Jio platform for an investment of Rs 43,574 crore valuing it at Rs 4.36 lakh crore in an all-cash deal. That’s 56% of the market cap of RIL (~7.8 lakh crore). And this investment knocked up the value of Mukesh Ambani’s star-child Jio to almost Rs 4.62 lakh crore.

About Facebook and it’s motive

So talking of Facebook, it has approximately 330 million users and since it has acquired Instagram and WhatsApp back in 2012 and 2014 respectively, users of those platforms come to about 500 million and 400 million respectively.

Facebook’s 98% revenue comes from advertising, a space that is dominated by Google & increasingly being affected by Amazon, Twitter, and a host of other players that also have a dedicated user-base. So growth is critical for Facebook. Hungry for growth, Facebook was wanting to enter the Indian markets for quite a long time and has done enough deals in India but not all have gone down well.

One deal that seems relevant to discuss in this context is Facebook Free Basics that was launched back in 2016. Free Basics is a Facebook-developed mobile app that gives users access to a small selection of data-light websites and services. The websites are stripped of photos and videos and can be browsed without paying for mobile data. That is if you want to surf the internet especially Facebook you won’t be charged for the data. That deal obviously didn’t succeded because of net neutrality — the principle that Internet Service Providers should enable access to all content and applications regardless of the source, and without favoring or blocking particular products or websites which Free Basics was a bias of and Facebook has been plotting to re-enter the Indian Markets in a big way ever since. Facebook has also been trying to enter India’s payment space through WhatsApp pay and compete with Paytm. But despite some tedious efforts with the National Payments Corporation of India ( NPCI ) Facebook has not been able to turn cards in his favor. Facebook has also been at the receiving end of issues with data, privacy, and fake news. A local partner with “reach” was needed and there comes Jio.

In the current scenario where a lot of companies have been affected and most of the consumers will think to move online for their future purchases, this deal will eventually help Facebook gain the customer base of Reliance Jio, start its own Payment Gateway, and ultimately attract transactional revenue.

About Reliance and its motive

So talking about Reliance Industries, Reliance Jio is a wholly-owned subsidiary of Reliance Industries and Reliance Infocomm is a wholly-owned subsidiary of Reliance Jio that provides a connectivity platform to over 388 million users of Reliance Jio. Reliance Industries also owns Reliance Retail Ltd. (99.95%) having various outlets that offer foods, groceries, apparel, and footwear, electronic goods, and much more.

The very same year when Facebook launched Free Basics, Reliance Jio entered into the Indian telecom industry with tariffs so low that made competitors cry. There were data plans so cheap that most people thought it was some joke going on. But at the end of it all, Jio shook the fundamentals of India’s telecom industry and added a whopping 388 million subscribers, most of whom were first-time users.

On the competition front, Jio is expected to become the №1 telecom network in India by the end of the fourth quarter for the financial year 20–21, taking the share from Vodafone-Idea whose subscriber base is expected to see some decline in the wake of poor network and hike in prices. Jio’s investment in superior fiber-based 4G technology and various technology services has ensured a good customer experience and gain users every quarter. At this end, Jio had proven to be a force but was facing its own share of battles. The ever-growing debt was an issue. Jio had to borrow huge sums of money to build the infrastructure needed to facilitate the company’s massive plan. In fact, only last year, Jio had close to 1.5 lakh crore worth of debt on its books but after some successful attempts by transferring debts to various other entities of Reliance Industries, Jio was left with a debt burden of about 40,000 crores. It needed a partner with money and user reach, hence Facebook. So out of the money invested by Facebook, Rs 28,574 crores will be used by Reliance Industries, and the rest Rs 15,000 crores by Jio, for now.

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So at one end, Reliance had the physical assets ( Retail, Fibre, and Mobile Broadband ), at the other end it was building digital assets in the form of new apps and services like Jio Digital Life, JioMoney, JioTV, JioFibre, JioFi to name a few and what it now needed was a fabric that ties it all together under one window and there came JioMart, acquired by Reliance Retail. JioMart platform follows the offline-to-online (O2O) model. This marketplace model allows products to be sourced from nearby merchants without requiring any native warehouses, allowing on-time hyperlocal delivery, particularly efficient for perishables and fresh food. The main advantage of Jio will be here to easily understand the preferences of customers by using various models of Facebook.

In this current scenario when businesses are not running smoothly, oil prices are down, more about the oil market in my previous article -

https://www.linkedin.com/pulse/oil-market-what-happened-means-investors-india-aakash-shah/

this is a great deal at the right time. This deal here will help further Jio’s ambition in bridging the rural-urban divide in almost all segments and help Jio achieve its goal to be a debt-free company.

The Plan

This union between Facebook and Reliance is a match of equals, convenience, and massive possibilities. A commercial partnership will take place between Reliance Retail and WhatsApp. This partnership aims to create a hyperlocal delivery network by connecting Kirana shops on JioMart with customers using the FB-owned WhatsApp. One should note here that 75% of the Kirana market is completely unorganized. And as noted earlier Whatsapp has over 400 mn users in India, JioMart plans to enable nearly 30mn local Kirana shops to digitally transact with every customer in their neighborhood through WhatsApp. Meanwhile three days into the deal and on April 25th, the delivery network has already started in Navi Mumbai, Thane, and Kalyan, and saw a significant increase in sales and margins for the participating merchants.

The Reliance Jio-Facebook partnership is also expected to flip the digital payments sector, remember how Facebook was wanting to enter the payments sector by using WhatsApp Pay? Well, they can use it here and there is always JioMoney. Besides working with 30mn Kirana shops across India to help them transact digitally with customers in their neighborhood, they will then extend the digital payment service to farmers, teachers, students, and small and medium-sized enterprises. The move will help WhatsApp directly take on established players Google Pay, PhonePe, and Paytm, possibly even dominating the sector. WhatsApp is waiting for final clearance to launch its WhatsApp Pay service, which is designed to run on the Unified Payments Interface (UPI). WhatsApp has the technology and reach, while Jio has a huge network among corner stores across India. The move will certainly help the Kirana stores in getting access to a huge market that will ultimately lead to huge growth in customers.

With Whatsapp Pay and a dedicated Whatsapp Business app, this is very much possible in India. Imagine being able to check what’s available at your local Kirana, ordering online, paying on Whatsapp Pay, and getting it in an hour. Seamless, convenient!

Final Verdict

Seeing both the company’s product portfolio and its reach this seems to be a perfect match with a great synergy between them. “All In One” is the word one can use to describe this entire system.

You want to start a business there’s Reliance Mart, You want to sell your products there’s Reliance Mart, As a consumer, you want to buy a product there’s Reliance Mart, If you want to inquire about a product before buying there’s WhatsApp Chat, If you want to see the product there are WhatsApp images, You want to make a payment there’s JioMoney and WhatsApp Pay. Well, we don’t know if this will kill the competition or lead to a monopoly in the market but once they get the customer base they can take it to a very high level, and we all saw that tactic in Jio.

Time will tell if this really is a Perfect Match.