It has been a week since the announcement of the $5.7 Billion deal between Facebook, which has 300 Million users on Facebook and 400 Million users on Whatsapp, and Reliance Jio, whis has 388 Million subscribers in India.
It is the largest FDI in the tech sector for a minority stake and makes Facebook the owner of 9.99% stake in RJio. What’s interesting about the deal is it comes during a lockdown and it is ALL CASH. Yes, you read it right, it’s an all cash deal worth 5.7 Billion USD or INR 43,574 Crore .
How Does it Benefit Jio?
Jio expanded very quickly in the Indian Telecom Market by offering dirt cheap 4G plans to people across the country. However, as could be expected, this resulted in a huge debt for Reliance Jio to the tune of 1.4 Lakh Crore. In order to restore confidence of shareholders, Mukesh Ambani promised to make Jio “net debt free” by March 2020.
Utilising its vast empire and its mitigation abilities, Jio was split up into 3 parts, the tower and infrastructure unit became a separate entity ,and so did the fibre optic unit and the telecom unit which alone retained the name Jio. This left a debt of 40,000 Cr for Jio which was easily manageable for a firm operating at this scale. The vast portion of this cash will be used to make Jio finally debt-free.
But that is just the monetary aspect.
What does Jio stand to gain in terms of strategic interest form this deal?
India is the proverbial unmilked cow at this time for tech giants. Close to 75% of India’s grocery business is completely unorganised. Reliance Retail has been aggressively pushing Kirana stores on its Commerce platform in a bid to capture this segment. Where Whatsapp comes in is provide easy last mile connectivity to a very large user base, facilitate easy delivery and expand user base exponentially.
And Jio is already on the path to diversifying its portfolio from just a telecom company to a truly versatile Tech Giant. It has launched its video conferencing service JioMeet to expand its portfolio and make Jio a household name by its sheer diversity.
How Does it Benefit Facebook?
Apart from owning a permanent 9.9% stake in a company that’s expected to grow exponentially, it also provides Facebook a gateway into the transactions market of India.
Right now Facebook’s business model is 85% reliant on ads. With the failure of its Free Basics model in 2016 in India as well as across the world, upon violating principles of net neutrality, and subsequent legislature to quash any hope for it in 2018, Facebook has been desperately looking to find alternate sources.
More recently, despite introducing Whatsapp Pay, it got stuck at the regulatory hurdles itself, and so in order to gain a foothold in the Indian scenario, it is collaborating with an established local behemoth. This allows Facebook to effectively partake with Jio in chunks of the pie, without dealing with the regulatory hurdles and letting Jio do the heavy lifting.
But Who is the Bigger Partner?
Many foreign analysts have made it look like this is another case of facebook just taking over another company, and, dare I say it, using a racial bias. But they’re vastly underestimating the resources of, and capabilities of Jio itself.
The partnership at best is 2 fighter approaching gingerly, sizing up the opponent. Jio has only created a Whatsapp number for JioMart. Just that. Any business can do that.
As for Facebook collaborating with its vast data stores to drive the analytics part for Jio Mart, that’s going to take many many more rounds and far more ownership. Facebook isn’t deploying its goldmine advertising solution for a 10% percent stake in a company multiple times smaller.
Jio is the one which has built a grassroot connect till now, without requiring facebook, Jio is the one whose systems are under use till now. Exclusive Whatsapp Pay payments seems a long shot to considering it employs the universal UPI platform and as such has many different gateways.
As of this moment, Jio holds most of the cards, effectively lowering debt, enhancing communications while keeping its platforms operational and most of all it retains the resources and infrasructure to independently ensure success of JioMart in India while denying Facebook any entry opportunities into a lucrative transactions business, should the negotiations go sour.
The combined power of Jio’s world-class digital connectivity platform and Facebook’s intimate relationship with the Indian people will offer innovative new solutions to each one of you. In the very near future JioMart – Jio’s digital new commerce platform - and WhatsApp will empower nearly three crore small Indian Kirana shops to digitally transact with every customer in their neighbourhood.
-Mukesh Ambani, Reliance Industries' Chairman
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