Facebook-Jio Deal: Lending Helping Hand to Each Other

Even though the COVID-19 pandemic has been gathering the center stage across continents, big news came from India recently — Facebook has bought about 10% (9.9% to be precise) shares of Reliance Jio for $5.7 Bn.

As the news of the investment came into the limelight, every newsletter writer, journalist, blogger, and industry expert has been scratching the surface to explain why this venture is a great move that is fruitful for both, Reliance and Facebook.

But first, a disclaimer. Minority stakes are funny things that occur for a wide spectrum of reasons and lead to numerous outcomes. We can jot down a theory about how investments gonna work out, but the world is dynamic, imperfect, and innately unstable. Companies change, new facts, and figures come up. Humans run businesses, not product documents.

So, instead of creating a general theory about the importance of this deal for both, Reliance and Facebook, let’s dig a little deeper and find out more.

Jio Gets Distribution, Facebook Gets Commerce

There is a basic assumption here — Facebook in India is not Facebook or Instagram; it is WhatsApp. WhatsApp has more than 2 billion users all over the world, and it posted, last year, that it had more than 400 million users in India alone, its biggest market by far. In the last quarter of 2019, WhatsApp was the most downloaded app, globally. This makes to believe that WhatsApp is the most prominent app in India.

So, how much value did WhatsApp create in India the previous year? Surprisingly, zero.

Since 2018, WhatsApp has been driving enterprises across the globe to connect with users to inform them about their buying history. e-Travel services in India such as MakeMyTrip and its subsidiaries — RedBus, and GoIbibo — and e-movie booking platform BookMyShow have already shifted to WhatsApp from text messages to inform users about their buying history. The amount of messages that moved to WhatsApp is still in single-figure percentages for these firms.

But that being said, it is apparent that the messaging app will double this effort and make it a 2-way lane — conversations between users and businesses. And these conversations will be utilized to propel at-scale commerce on the app.

Now just think if WhatsApp made inroads into not just movie booking platforms or travel agencies, but every single small-scale retailer established across India. That’s where Jio dives in; it has been creating a giant model for the past few months, maybe years that could soon sweep across India. JioMart, a digital commerce platform poised to give cut-throat competition to Flipkart and Amazon.

In the near term, this combined power of JioMart and WhatsApp will digitally transform about 3 crores (30 million) Indian grocery stores.

Jio Gets a Communication App, Facebook Gets Payments

Both Ambani and Zuckerberg share a mutual concern; their respective e-payments platform, Jio Money and WhatsApp payments, are yet to make material progress.

Payments are oil for the e-commerce industry. Combined, both the platforms will have the mettle to disrupt a highly competitive payments market in terms of money as well as data bank. In order to extend the application radar, Mukesh Ambani seeks a superapp with Facebook; but a one-size-fits-all app is not considered a good option, as of now.

WhatsApp will have the benefit that it no longer has to abide by data localization norms. It just has to find out a way to leverage Jio Money. Jio, on the other hand, will have a credible communication app. This is a big deal for Jio as it is an on-ramp to deliver services such as insurance, and lending that require a foolproof, well-established, communication app — WhatsApp.

Some experts believe that the applications are so close that this can possibly develop a ‘superapp’ that combines communication, messaging, payments, and commerce; just like China’s WeChat.

Moreover, this would not be just a gamechanger in the consumer technology space in India. If executed optimally, it would wipe out myriads of start-ups within a blink of an eye. Large-scale capital investments will be at risk.

Jio Gets Data, Facebook Gets Data

Facebook is an ad-tech firm, while Jio is a telecommunication and media firm.

Such firms have their pros and cons. Yet, a combination of an ad-tech firm, a telecommunication, and media firm makes quite interesting as, to an extent, they offset each other’s cons.

Ad-tech firms consist of marketers and the technology that aids them to create maximum value for these marketers. A real-time bidder, programmatic exchanges, data stores, and auction strategy — all they require are trustworthy and skilled publishers where they put these ads.

Media firms do that. Take the example of the unbeatable duo of YouTube and Google. While YouTube brings media, which further attracts users, Google brings advertisers. Mission accomplished.

Telecommunication companies add another aspect to this as they enable ad-tech firms to access one of the most valuable data points — location. If you know the location of a user, you can do lots of things you could not do earlier. Also, telecom firms in India are striving to generate revenue, so if there is a value-capture opportunity, they will certainly grab it.

This is not a new thing at all. Case in point, last year, InMobi — an Indian company and the world’s largest independent ad-network — teamed up with Airtel TV and even developed a separate company just to attract telecom companies.

Now, consider Facebook, one of the leading advertising giants worldwide, paired with Jio, India’s prominent telecom service provider, as well as the media content on Jio’s platform. The former is striving to make money in India, while the latter is drowned in losses and debt; a perfect combo.

Facebook Gets Returns, Jio Gets Capital

Maybe the reason Jio took $6 Bn from Facebook was that the telecom giant needed the $6 Bn.

Facebook’s investment of Rs 43,574 crore is not a gigantic deal, looking at the capital invested to establish Reliance Jio, yet is a crucial one especially at a time when the COVID-19 pandemic has taken a toll on businesses and economies. Over the past decade, Reliance Industries (RIL) has invested around Rs 4 lakh crore to create the Jio digital environment. But, the deal will support Mukesh Ambani (chairman) to implement his plan to make RIL a net debt-free enterprise by March 2021.

Experts reckon that the final realization from the deal will be almost Rs 38,000 crore, after the return on investment (ROI) and income tax. It will be similar to the investment that RIL made to develop the asset, sans disturbing its bank account.

An investment in one of the rapidly growing firms worldwide, and one that has outperformed its peers, both of which are going through a tough time. All when the telecom sector in India is at the brink of a duopoly.

The tables could turn, the winds could change their course, and India could end up in a situation wherein Facebook receives 10% of a firm that runs an apparent duopoly in the second-largest telecom market, globally.

Is that worth a $6 Bn bet, especially for a company that registered $70 Bn revenue last year? Certainly, yes.

Another Way to View This Deal

There are numerous reasons supporting the importance of this deal. One way could be to look at all possible ways this venture helps Jio and Facebook. Well, there is another way to look at it. And that is not what this deal brings but what do Jio and Facebook crave for, but can never achieve without each other.

Let’s start with Facebook. In 2015, Facebook attempted to provide Free Basics in India. It was distributed with an aim to target those people who did not have access to the internet to get it; for free. The Indian government blocked the free service.

Facebook moved on to introduce payment feature on WhatsApp. India blocked that too. Then arrived cryptocurrency via Libra. Same result.

Facebook runs the most popular mobile app in India, creating no value from it. While Facebook has been hitting the headlines for privacy breaches across the globe, it has bravely fought, way up to the Supreme Court, to maintain the privacy of Indian users. It rejected the demands to crack the encryption on WhatsApp, in spite of huge pressure from the government.

No overseas organization has toiled harder to thrive in India and none has stumbled more at it.

Then comes Jio. No doubt, Jio is in a dire need for capital, an ad-network, and a payments app. However, it can obtain all these resources even without Facebook. That is how powerful Reliance is. It has access to gargantuan force and deep coffers that propel it to penetrate into mature markets such as telecom, and e-commerce against incumbents who have been thriving for decades.

Reliance is a bit late, but when it makes its way through, it does not just outpace its competitors, it wipes them out. That is what it did with the telecom sector and that is what it will possibly do with the e-commerce ecosystem.

So, what approaches does Reliance follow? Mostly pricing. It undermines everyone, and then holds on, looking to go beyond the balance sheets of other enterprises permit.

That is why there is only one thing that Reliance cannot beat. It cannot beat anything that is for free. It can beat Airtel and Vodafone, Hotstar and Netflix, and Amazon and Flipkart. But it can never beat WhatsApp, even if it leaves no stone unturned. Because how can you undermine anything that is superior and free? It surely needs something like WhatsApp. It can never develop anything better.

Maybe this deal with Reliance Jio gives Facebook, ironically enough for a social network, a friend.