"Bravo Mukesh!"

The Deal...

The recently announced $5.7 billion investment by Facebook in Jio Platforms is the largest investment for a minority stake by a technology company anywhere in the world and the largest foreign direct investment in the technology space in India.

The entire deal appears to be focused on e-commerce business and e-payment services in the near term. The deal will give Reliance access to the 400-million-strong user base of WhatsApp as it seeks to jump-start its e-commerce business under JioMart. JioMart will allow millions of local retailers and kirana (small neighborhood shops) merchants to list their products on the portal and sell them to customers. Combining the power of instant messaging app WhatsApp with JioMart will enable people to connect with businesses and make purchases in a seamless mobile experience – this could radically alter the country’s retail landscape.

There is also chatter about how Reliance Jio and Facebook could eventually create a super-app, along the lines of WeChat in China. If we look at WeChat, anyone can set up a store on the platform – from the neighboring cake shop to the largest luxury brands in the world. If WhatsApp is the super app and Reliance is one of many sellers, there is no conflict. However, in case the super app is closely associated with a parent such as Jio or Reliance Retail, it would defeat the very purpose of a super app introducing conflict of interest for other sellers.

How do the parties benefit from the deal?

Many small-scale entrepreneurs have capitalized on the popularity of WhatsApp to reach their customers and showcase products. One of the limitations, however, has been the inability to complete the sale on the app itself. Entrepreneurs have had to use a third-party payment vendor or collect cash on delivery, but this obstacle will come to an end in India along with the government approval of WhatsApp Pay. The ability to complete the entire business process on WhatsApp, from marketing to accepting the payment, will provide an incentive for small business owners in India to prefer WhatsApp Pay over other digital payment platforms.

For years, Facebook has been improving the privacy features of WhatsApp and adding new capabilities to serve a multitude of users. The company's partnership with Jio will finally make it possible to reap rewards from the $19 billion cheque it wrote to acquire WhatsApp back in 2014. WhatsApp is all set to transition beyond an app into a “platform”, with commerce and payments becoming integral to its strategy, besides communication.

For Facebook, the commercial agreement will also provide access to deeper, richer data. That would mean more intense and localised insight into the consumption patterns of Indian customers. This will provide Facebook a new perspective on Indian consumers, which will only add to its already formidable advertising machine.

Mukesh Ambani has believed in the concept of ‘data is the new oil’ for a few years now. He wants access to as much information on his users as possible. To achieve that goal, Jio which was born as a mobile service provider just 3 years back has quickly added everything from movies to music to upcoming services such as e-commerce. Now, Mr. Ambani wants to bring 30 million small businesses onto his new commerce platform, JioMart. WhatsApp with its mother-load of user data from its 400 million users completes the missing piece of the puzzle. About 75 percent of the $1.2 trillion retail market in India is still in traditional mode. A large part of the traditional retail is for groceries, estimated at about $700 billion. Even if a 20 percent of this is targeted in the next two years, it is a huge opportunity for Reliance.

How will it impact the competitive landscape?

The deal is expected to help Reliance and Facebook to take on players such as Walmart-owned PhonePe, Alibaba-backed Paytm, Google Pay and Amazon Pay in the Indian digital payments space which is expected to rise five-fold to reach $1 trillion by 2023. WhatsApp Pay would be in a position to provide a unique experience to business owners, the same way WeChat does in China. 

In the e-commerce space, the direct pressure of this partnership would be felt by both Amazon and Walmart owned Flipkart. Both have by and large focused on metro and tier-1 cities and are yet to penetrate beyond the top 100 million users in India. They will now have to increase their spend and expedite rollout plans to compete with JioMart’s distribution and execution prowess. Among the Indian technology companies, the biggest impact is likely to be felt by Paytm and hyper-local delivery players such as Big Basket and Grofers.

Summary

Reliance has been described as India’s Exxon, AT&T, and Amazon rolled into one. While it has fulfilled its goals of becoming an energy giant and the biggest telecommunications player, it has yet to seriously challenge Amazon or Flipkart as an e-commerce platform. This is where Facebook can help. Since 400 million Indians already use WhatsApp, a tie-in with JioMart would connect tens of millions of small-business owners with a larger base of potential consumers. The deal gives enough leverage to JioMart to effectively compete with Amazon and Walmart-Flipkart in India. The partnership could transform India’s e-commerce market.

**************************************************************************

Thanks for reading. All views are personal.

**************************************************************************