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Facebook-Reliance Jio Deal Analysis: How Can the $5.7bn Investment in Jio Prove to be a Game-Changer for Facebook in India?

Jul 25, 2020 2:36 PM 3 min read
Editorial

Jio Platforms’ (a subsidiary of Reliance Industries) fund-raising blitz has raked up c. $20.2bn over the past three months by divesting nearly 33% stake to an eclectic mix of 13 investors, including Facebook, Silver Lakes, Vista, General Atlantic, ADIA, and the latest to jump on the bandwagon - Google. But the biggest and perhaps the most significant investment remains the very first one announced on April 22nd - the one by social media giant Facebook.  

Fun Fact: Facebook’s $5.7bn investment in Jio for 9.99% stake makes the social media giant the largest minority shareholder in the Indian telecom sector and the biggest foreign direct investment (FDI) in India’s tech space. The deal also marks the  largest investment for a minority stake by a tech company in the world. 

 

In Jio, We Trust

Needless to say, Facebook sees a lot of potential in this collaboration. 

India is the world’s largest user base for Facebook. It is also the largest market for Facebook-backed messaging service, WhatsApp, with over 400m monthly active users. And with 80m users, India is second only to the US in terms of the number of users for its photo-sharing app, Instagram.

Reliance Jio is the largest telecom operator in India, both by subscriber base (369.93m users as of January 2020) as well as revenue market share. 

And in due course, the “confluence of forces with common interests” could create a behemoth, says Sanchit Vir Gogia, Founder and CEO of Greyhound Research. 

 

Crossing the Regulatory Hurdle

The deal becomes all the more important considering that previous attempts made by Facebook to enter the Indian market have faced major regulatory hurdles. 

In 2016, Facebook tried to offer free internet connectivity to India in a program called Free Basics, but was banned, owing to the fact that it favoured some Internet services over others.

Facebook-backed WhatsApp has been beta-testing its payments service WhatsApp Pay (rolled out for a few) for two years now, but has not been able to get regulatory approvals for a full rollout.

Given RIL’s deep penetration in the Indian market and the bearing Mukesh Ambani has on the entire ecosystem, the deal could prove to be a breakthrough for Facebook, perhaps also helping it navigate an increasingly protectionist Indian market. 

And the possibilities have already started to show. 

The first tie-up between the two giants is an e-commerce venture called JioMart, which allows users to order groceries via WhatsApp messaging. 

WhatsApp is planning to team up with more Indian lenders to expand banking services in rural areas and for lower income individuals. It will also expand pilot projects with banking and other partners to cover financial services such as pensions and insurance.

Market grapevine also has it that Reliance Jio and Facebook are in talks to build a ‘super app’ of sorts.

Here’s a brilliant table that shows how massive the Facebook-Reliance Jio universe can be - covering practically everything from currency to commerce, content, community and connectivity.  

How Can the $5.7bn Investment in Jio Prove to be a Game-Changer for Facebook in India?

The best incentive for Facebook, even if the above were not to succeed, is that the deal gives it a potentially direct pipeline into the data of India’s small and medium businesses and Jio’s network of users.

Now while officials from both parties insist there is no data-sharing agreement on the cards, “the future's not ours to see”.

For all we know, considering Jio’s massive user base and deep penetration into the Indian market, the data it can provide Facebook will be no less than a goldmine. Deep, rich data with more intense and localised insight into the consumption patterns of Indian customers - giving Facebook a whole new perspective on Indian consumers, and potentially adding to its already formidable advertising machine.

“Advertising is the holy grail. Jio is sitting on a goldmine since it hasn’t been able to monetise its users,” Neil Shah, Partner at Counterpoint Research told Economic Times. “Besides, Jio can also integrate Facebook’s ad platform into its products on a revenue share basis,” Shah said.

But when two massive players like Facebook and Reliance Jio come together, regulatory scrutiny is inevitable. Privacy and anti-trust issues will be closely probed. For now, all of us have our eyes hooked on how this partnership will play itself out.  

FIN.

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