Jio Facebook Deal: Reliance Industries (RIL) share prices rallied on April 22 after Facebook said it will invest $5.7 billion in Reliance Jio. The telecom unit of RIL sold a 9.99 percent stake to the US tech giant for Rs 43,574 crore. The investment makes Facebook the largest minority shareholder in Jio and values the platform at an enterprise value of Rs 4.62 lakh crore. It is the largest investment for a minority stake by a tech firm anywhere in the world. It is also the largest FDI in the technology sector in India and with this, the deal values Jio platforms among the top five listed companies in India by market capitalisation. RIL believes that comprehensive digitalisation will be an absolute necessity to revitalise the Indian economy in the post pandemic era.
Benefits of Jio Facebook Deal
India is the biggest market, in terms of subscribers, for the social networking giant’s flagship products, Facebook (over 250 million) and WhatsApp (400 million). The timing of the deal couldn’t have been better to bolster India’s image as a destination for foreign investment. The partnership creates a powerful entity for the Indian market, with competitors like Amazon and Walmart-owned Flipkart.
‘Small is big’, that is Reliance Jio’s mantra for the future. It hopes to hem together myriad small businesses on its Jio platform to build India’s biggest e-commerce engine. That vision matches Facebook’s, which monetises its platform with listing of small businesses and would like more business to be done via Facebook and WhatsApp in India. Jio Money and WhatsApp Pay could have an important role as the enablers of e-commerce.
The Jio Facebook deal indicates that India’s post-Covid recovery will be fuelled by its retail sector. Foreign businesses have always wanted their finger in the retail pie. It is also no surprise that digital companies and payment service providers are also vying for the same pie. The FDI should be a welcome in the strained balance sheet of the too-big-to-fail Reliance.
The Jio Facebook deal gives the social media giant a firm foothold in a fast-growing market and will help the Indian oil-to-telecom conglomerate cut debt and boost its new online grocery marketplace JioMart. This deal is a great opportunity for Facebook to monetise WhatsApp and morph it into a version of WeChat for India. For kirana stores, in the near future, it might mean making a wider range of cheap fast mover consumer goods available to more consumers.
In the near future JioMart and WhatsApp will empower nearly 30 million small Indian kirana shops to digitally transact with every customer in their neighborhood. RIL said the partnership will accelerate Jio’s pursuit of its vision to enable a Digital India for 1.3 billion Indians and Indian businesses, especially small merchants, micro-businesses and farmers. However, WhatsApp and Jio will remain independent entities with their own business models and compete where necessary, in line with the respective business models, and collaborate in other areas where they see synergies.
Facebook and Jio’s alliance will not only counter competitors like Amazon and Flipkart, but will rupture the entire ecosystem of e-commerce in India. First, it is important to remember that Facebook is piggybacking on Jio providing internet access in India. With an edge on data, this partnership threatens the very concept of net neutrality and opens the door to even more deep anti-competition tactics like deep discounting, etc. Amazon and Flipkart won’t be able to compete because they won’t have the leverage of data. Apart from this, digital payment apps like PayTM and PhonePay already facing cash crunches will be forced to join Jio and Facebook’s platforms.
The main focus of this Jio Facebook deal is to come up with digital-based solutions for 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector. The synergy between Jio and Facebook will help realise the ‘Digital India’ dream with its two ambitious goals — ‘Ease of Living’ and ‘Ease of Doing Business’ – for every single category of Indian people without exception.
In India, retail will never be a zero-sum game. The neighborhood kirana store has always been the cornerstone of the Indian food and grocery retail sector. Kirana stores have always weathered competition and upgraded to remain in business. However, India’s retail market is evolving. We must create a uniform retail policy, not just e-commerce, to facilitate new models of collaborative competition.
The Facebook investment is welcome news for the economy. With government investment constrained, and corporate investment drying up, Facebook’s bid will attract plenty of eyeballs globally. In a climate where the world is struggling to find a bright spot for growth, this is exactly the right kind of attention to grab.