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Amidst all the negatives in the wake of global coronavirus pandemic comes one positive that led India’s Reliance Industries Limited shares to 12 percent intraday surge. The trigger was Facebook committing an investment of USD 5.7 billion in Reliance’s Jio Platforms ‘the largest spent for minority stake ever in the global tech space’. The two names- Facebook and Jio- are arguably the biggest names in India’s digital space. Facebook and its WhatsApp messaging platform are two widely used apps in the country and with Jio being the telecom with most subscribers, there is a lot in this deal that interests all.
Let us understand the basics and also know if there are any grey areas that might concern some.
What’s the deal?
It is simple on its face. Jio Platforms is the parent company of Jio Infocomm, a provider of phone and data services besides many apps including JioCinema and JioMart. Facebook, which owns WhatsApp besides being the most used social networking platform globally, will put INR 43,574 crore in Jio Platforms and through this deal will own 9.99 percent stake in the latter. The stake will enable the investor to have one member on Jio’s Board. This deal has taken the valuation of Jio Platforms to INR 4.62 lakh crore, which is a big thing considering that Jio started its data services in 2016 but soon took over the market wiping many older players and leaving the telecom industry with only three operators.
Reading between the lines
Jio and Facebook have a lot to offer each other. Facebook’s purchase of Jio stake is its biggest investment since the Mark Zuckerberg-led company acquired WhatsApp for over USD 20 billion in 2014. Consider this now. Jio in 2019 displaced Airtel from the top and now has over 37 crore subscribers. Many of these subscribers use Facebook and WhatsApp services. Facebook earns by allowing businesses post ads on its platform but there is virtually no revenue source for WhatsApp. In this light, what Jio’s JioMart can give WhatsApp is an entry in India’s lucrative e-payments and e-commerce sector. The sectors are dominated by Paytm and PhonePe and Amazon and Walmart’s Flipkart respectively.
For Jio, there is a lot in this synergy. China’s WeChat, a messaging app similar to WhatsApp, is also the most used transaction platform in China. WeChat seamlessly sends money between users and the same model can be adopted in India by using WhatsApp services. JioMart has already announced its intention to have local grocery stores as sellers to nearby consumers. This transaction can take place on JioMart and facilitated by WhatsApp’s payment infrastructure that has already been developed for Indian market. In fact, WhatsApp’s over 40 crore users in India are Jio’s target for its upcoming e-commerce business.
Ambani’s saving grace
It is also notable that the deal has come at a time when crude oil prices are plummeting to hitherto unseen levels. We know that Reliance’s petroleum refinery unit is one of its biggest revenue earning sources. Now that the global economy has come to a screeching halt and an oil glut has developed, Jio-Facebook deal that is targeting India’s e-commerce sector is a much-needed shot in the arm for the Ambani family. News reports have also confirmed that Mukesh Ambani’s daughter, Isha and son, Akash were directly involved in talks with Facebook. The deal, which was codenamed as Project Redwood, involved several advisors, auditors and bankers.
Is Jio-Facebook deal a boost to all?
This is one of the many questions emanating from the deal that is being touted as a win-win scenario for all stakeholders. Mukesh Ambani may be right when he says that the deal will help 3 crore small kirana store owners to sell digitally to neighbourhood customers. It may mean that the small trader, for whom Flipkart and Amazon’s ecommerce spelled doom, might benefit largely from the upcoming arrangement. It is also being said by analysts that Jio’s lead in 5G and Facebook’s tech superiority in virtual reality (VR) and IoT can both benefit by leveraging each other’s strength, thereby enriching India’s tech space.
This aside, the coming together of the two behemoths may be a cause of worry for existing platforms like Paytm and Google Pay. In fact, there is one clearance that Jio – Facebook need before a final go ahead and that is from the Competition Commission of India. Amazon and Flipkart will also be brainstorming about how to modify their offerings in light of an upcoming competitor that envisages linking the local kirana store with nearby customers. Time will tell how much disruption is caused once the dust settles and if it is a completely win-win situation for Indian consumers.
Also read: Education in the Times of COVID-19
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