Reliance Industries has traditionally dominated the market by undercutting prices of their competitors. To avoid a repeat of Reliance Jio in telecom sector, the government must ensure collaborative competition as India’s retail market evolves.
Facebook, the world’s largest social media company, has invested $5.7 billion for a 9.99% stake in India’s Reliance Jio Platforms, a subsidiary of India’s most valuable company, Reliance Industries. This deal is the largest foreign investment in India’s technology sector and one of the most significant cross-border investments in history, reminiscent of Yahoo’s $1 billion investment in Alibaba in 2005. The deal comes at an opportune time as it boosts India’s global image as a foreign direct investment destination, especially amidst the Covid-19 era and the nation’s broader macroeconomic condition. It should also remind India that one of our most valuable assets (particularly in the eyes of both Western and Far East investors) is the current and future consumption of its growing middle class, despite the negative headlines from near-term economic volatility. However, this is no ordinary deal. Both the Indian consumer and government must understand the complex strategic and economic implications for Reliance, Facebook and, most importantly, India.
Facebook’s WhatsApp has over 2 billion users globally and 400 million+ users in India. However, despite its sheer size and presence, WhatsApp has been largely unsuccessful in monetising its massive user base India, their largest market. This strategic alliance with Jio could be the catalyst Facebook has been seeking to accelerate its India revenue, while also fast-tracking regulatory hurdles that could unlock greater monetisation potential.
Jio has invested heavily in building a digital commerce platform called JioMart. In the near-term, Jio/Facebook will enable millions of kirana stores to sell products and transact via WhatsApp. WhatsApp would be the platform providing Facebook with ability to monetise the payments volume. This is clearly a significant digitisation opportunity for India’s retail market–given approximately 90 per cent of India’s retail sector is currently unorganised and is mostly comprised of neighbourhood kirana stores.
While full details are not yet announced, the business model likely entails on-boarding nearly 30 million kirana stores and providing them with a digital storefront via Jio/WhatsApp. The immediate impact could be even intense competition and price wars to a sector with already thin margins. Kirana stores were set up to serve a hyperlocal customer base, and now consumers could have the choice to buy from multiple stores, not just their closest neighbourhood favourite. It is also unclear at this stage if the kirana stores could face competition from Reliance Retail and JioMart themselves. If Reliance decided to compete with kiranas directly, they would be quite well-positioned as they own the critical data (e.g. which vegetable sells best in which neighbourhoods). Alternatively, they could insert themselves into the value chain and have kiranas act as last mile delivery, which would reduce kiranas’ value proposition and subsequently their margins. Reliance Industries has traditionally dominated the market by undercutting prices of their competitors. To avoid a repeat of Reliance Jio in the telecom sector, the government must ensure collaborative competition as India’s retail market evolves.
Besides retail, the payments sector could also be targeted. Neither Jio Money nor WhatsApp Pay have excelled in India. However, combining forces may provide Reliance and Facebook with an opportunity to re-enter the currently fragmented market with greater leverage. Some industry analysts believe the strategic rationale of the deal is to create a “super-app” (e.g. WeChat in China) that leverages its massive install base and incrementally adds new products and services (e.g. ride sharing, food delivery, financial services). In this potential scenario, Reliance/Facebook could monetise all payment volume transacted through the app and could also force India’s startup ecosystem to either integrate or compete on the incremental services. India’s Competition Act is currently not strong enough to curtail abuses of monopoly power. The laws must be revisited in the wake of changing business dynamics where “access to personal data” is one of the most valuable assets that can be used to garner market share and quash competition.
As the deal ultimately closes and business plans are finalised, the aggregate data across both Jio and Facebook would be enormous and provide both an undue advantage over competition, which include large players like Amazon and Walmart/Flipkart. Jio/Facebook would be best positioned to launch new products and even unlock high value advertising revenue. Unlike the United States and Europe, we currently do not have strong privacy laws in place to prevent misuse of personal data by either of these two entities. While the Supreme Court guarantees an individual’s right to privacy as a fundamental right, India currently does not have a legal framework to guarantee that right. Data privacy and confidentiality need to go hand in hand with the continued digitalisation of India.
Lastly, we, as Indians, should consider the impact of Jio’s strategy of recently selling equity to Facebook (along with other private equity firms such as SilverLake Partners, Vista Equity Partners, and General Atlantic). It’s a shame that despite being the world’s fifth largest economy, Jio could not turn to domestic equity investors in either the public or private markets. Turning to foreign funding means that the economic windfall from Jio (i.e. from the digitisation of India’s growing middle class) will increasingly flow to US-based investors. While we acknowledge that Reliance’s equity ownership base (as well as other Indian equities) are very often held by foreign investors, it’s critical that India retains this benefit as much as possible.
While optically the Jio/Facebook deal is about one of America’s largest and most successful companies investing in India’s emerging digital economy, there is more to it than meets the eye. Whether the deal fosters India’s digital growth competitively or the two platforms use this opportunity to gain further dominance remains to be seen.
Vivek Tankha is a Member of Parliament (Rajya Sabha) from the Congress Party. A senior advocate practising in the Supreme Court, he has also served as Advocate General of Madhya Pradesh and the Additional Solicitor General of India.
Facebook’s WhatsApp has over 2 billion users globally and 400 million+ users in India. However, despite its sheer size and presence, WhatsApp has been largely unsuccessful in monetising its massive user base India, their largest market. This strategic alliance with Jio could be the catalyst Facebook has been seeking to accelerate its India revenue, while also fast-tracking regulatory hurdles that could unlock greater monetisation potential.
Jio has invested heavily in building a digital commerce platform called JioMart. In the near-term, Jio/Facebook will enable millions of kirana stores to sell products and transact via WhatsApp. WhatsApp would be the platform providing Facebook with ability to monetise the payments volume. This is clearly a significant digitisation opportunity for India’s retail market–given approximately 90 per cent of India’s retail sector is currently unorganised and is mostly comprised of neighbourhood kirana stores.
While full details are not yet announced, the business model likely entails on-boarding nearly 30 million kirana stores and providing them with a digital storefront via Jio/WhatsApp. The immediate impact could be even intense competition and price wars to a sector with already thin margins. Kirana stores were set up to serve a hyperlocal customer base, and now consumers could have the choice to buy from multiple stores, not just their closest neighbourhood favourite. It is also unclear at this stage if the kirana stores could face competition from Reliance Retail and JioMart themselves. If Reliance decided to compete with kiranas directly, they would be quite well-positioned as they own the critical data (e.g. which vegetable sells best in which neighbourhoods). Alternatively, they could insert themselves into the value chain and have kiranas act as last mile delivery, which would reduce kiranas’ value proposition and subsequently their margins. Reliance Industries has traditionally dominated the market by undercutting prices of their competitors. To avoid a repeat of Reliance Jio in the telecom sector, the government must ensure collaborative competition as India’s retail market evolves.
Besides retail, the payments sector could also be targeted. Neither Jio Money nor WhatsApp Pay have excelled in India. However, combining forces may provide Reliance and Facebook with an opportunity to re-enter the currently fragmented market with greater leverage. Some industry analysts believe the strategic rationale of the deal is to create a “super-app” (e.g. WeChat in China) that leverages its massive install base and incrementally adds new products and services (e.g. ride sharing, food delivery, financial services). In this potential scenario, Reliance/Facebook could monetise all payment volume transacted through the app and could also force India’s startup ecosystem to either integrate or compete on the incremental services. India’s Competition Act is currently not strong enough to curtail abuses of monopoly power. The laws must be revisited in the wake of changing business dynamics where “access to personal data” is one of the most valuable assets that can be used to garner market share and quash competition.
As the deal ultimately closes and business plans are finalised, the aggregate data across both Jio and Facebook would be enormous and provide both an undue advantage over competition, which include large players like Amazon and Walmart/Flipkart. Jio/Facebook would be best positioned to launch new products and even unlock high value advertising revenue. Unlike the United States and Europe, we currently do not have strong privacy laws in place to prevent misuse of personal data by either of these two entities. While the Supreme Court guarantees an individual’s right to privacy as a fundamental right, India currently does not have a legal framework to guarantee that right. Data privacy and confidentiality need to go hand in hand with the continued digitalisation of India.
Lastly, we, as Indians, should consider the impact of Jio’s strategy of recently selling equity to Facebook (along with other private equity firms such as SilverLake Partners, Vista Equity Partners, and General Atlantic). It’s a shame that despite being the world’s fifth largest economy, Jio could not turn to domestic equity investors in either the public or private markets. Turning to foreign funding means that the economic windfall from Jio (i.e. from the digitisation of India’s growing middle class) will increasingly flow to US-based investors. While we acknowledge that Reliance’s equity ownership base (as well as other Indian equities) are very often held by foreign investors, it’s critical that India retains this benefit as much as possible.
While optically the Jio/Facebook deal is about one of America’s largest and most successful companies investing in India’s emerging digital economy, there is more to it than meets the eye. Whether the deal fosters India’s digital growth competitively or the two platforms use this opportunity to gain further dominance remains to be seen.
Vivek Tankha is a Member of Parliament (Rajya Sabha) from the Congress Party. A senior advocate practising in the Supreme Court, he has also served as Advocate General of Madhya Pradesh and the Additional Solicitor General of India.
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