Jio's Rainbow Alliance- Much more than an India Growth Story

Ever since news first came out in late April about Facebook's investment of USD 5.7 bil for a 9.9% stake in Reliance's Jio, the markets and analysts have been in a tizzy. Call it the zeitgeist of the digital transformation around #covid19 or a remarkable opportunity to grab a piece of the Indian market, but since then, in the last 12 weeks Jio has been announcing one investor after another.

Reliance sold off about a 34% stake in Jio, raising close to USD 20 bil at a valuation close to USD 58 bil. The deals have been so lucrative that the parent Reliance was able to wipe off all debt from it's balance sheet almost 9 months ahead of schedule. For a conglomerate whose fortunes till not have depended on petrochemicals, this is a remarkable achievement at a time when crude prices are low due to poor demand. But while the financials are extremely interesting, for me the real questions are why now? Why Jio? Before we explore that facet. let's quickly have a look at some key factors that stand out among these deals:

• Both Google and Facebook investing in what is essentially a telecom player within such a short window
• The diversity of the investors representing #privateequity , #sovereignwealthfunds and #venturecapital representing a very diverse set of stakeholders and national entities, with non-Tech firms at 10% to 16% premiums

So Why Jio?

To my mind there are three crucial aspects of this sudden interest in Jio, with access to Indian markets being among the lowest ranked strategic reason.

1. #indiagrowthstory :

So, yes Jio is an attractive investment opportunity, being India's largest telecom player, with an almost zero marginal cost all IP technology based 4G network powered by #CISCO and #Oracle enabled my massive upfront capital investments. With this round of funding, Reliance has not only retired the debt, but also has a war chest of USD 4 bil plus. Jio closed FY 19-20 with revenues of USD 9.6 bil and EBIT of USD 2 bil and serves close 350 mil subscribers across it's platforms in India. But this series of investments are a longer term play than for this reason. What sets Jio apart from other firms till now, is scale and potential with the backing of a market of 1.3 bil consumers who are getting on to the digital bandwagon now. Facebook, seeing the potential of this market had come up with FB Free Basics offer earlier, which was rejected by TRAI in 2016. If there is one firm which can create legal logjam, bureaucratic red tape and turn negative public opinion, it's Reliance. For this reason, tying up with Jio makes great sense for Big Tech. What sets Jio apart from other firms till now, is scale and potential with the backing of a market of 1.3 bil consumers who are just getting on to the digital bandwagon now. Unlike other major markets, India, is still at 40% Internet penetration. More than direct revenues, the potential of monetization of user data, #bigdata and AI applications, hold great promise for the future.

2. Geo-economics of Connectivity:

This was not a line I had initially been thinking of, but last week's article on Stratchery was an eye-opener. Though I prefer not to focus on the geological angles but Stratchery does bring up a plausible thesis.

For quite some time, the Internet has had invisible barriers, beyond our perceived linguistic or socio-ethinc barriers. Won't go into details, those interested can refer Ben Thompson's original article linked above, but today we can look at the Internet as divided into five (US, EU, China, India and Russia- the last being my own addition) rather than a single Internet, with governments and groupings of Tech companies dominating their own areas. The recent disputes surrounding Huawei is not only an indicator that the earlier laissez -faire model of the internet is unsustainable. Governments around the world are skeptical and concerned about the rapid advances made by Huawei, its possible links with the PLA, and worries about data privacy. And it is here that the pedigree of Jio's investors becomes interesting. Not only is Jio working closely with both Google and Facebook, but it also has hardware players (Intel & Qualcomm) investing through their venture funds, other PE and even SWF's. To ignore this by focusing on only valuation would be short sighted. It's almost as if Jio is building a powerful rainbow coalition of powerful players invested in it's success, and as a corollary, as telecom network become more software-centric, cloud-native, these firms have a ring side seat to new developments.

In this context, it is interesting to note that while Reliance relied on external vendors for building it's 4G network, it claims to have developed a fully in-house 5G solution, which it is trying to market in competition to Huawei. A successful rollout in India, enables Jio to bid for 5G implementation worldwide. In fact during his meeting with President Trump, Mukesh Ambani claimed that Jio was the only network without a single Chinese component. Recently Secretary of State Mike Pompeo, backed Jio as a 'clean telco'. In this context it is not difficult to see how Jio is making a play as a telecom vendor also. It is not easy taking on Huawei and ZTE, but current geopolitical/ geo-economic situation, it's strategic partnership with key players Microsoft for Azure, Tech Mahindra, Wipro, Cisco, along with recent acquisitions give it significant tailwinds.

3. #web30 or call it the FMCGization of telecom :

Web 3.0, was supposed to be about giving power back to individuals, freeing up the internet from influence of large firms, #IoT, #semanticweb. But, I believe that the web will evolve differently.

Going through the evolution of the web, Web 1.0 was about publish, desktops, and slow diffusion of the web out of academic and corporate domains. Web 2.0- the Social Web focused on #usergeneratedcontent, and democratization of web use (millions of individuals logging on to the web as part of their lives), rise of Tech giants (who gradually started determining the structure and norms), rise of smart phones, rise of use of #ecommerce.

But, still the needs of the #nextbillion, are not met. What we are seeing is latent demand for access to the web, but not in the way that we have envisaged till now. But to understand this, we need to first understand who the next billion consumers are going to be? Where are they going to come from? What are their needs?

The next billion, or say, couple of billion consumers who are going to power global growth, are unlikely to come from established geographies. As we saw earlier, the Internet is actually splitting into a series of Internets. I would add Africa, other markets in S.Asia and LatAm to this group. The key characteristics of these markets being a large size (preferably > 20 mil new potential users), internet penetration still below 60%. Also, these markets will tend to have resisted early adoption of the North American or European internet because of comparatively lower literacy and cultural and economic barriers. These economies will tend to follow the Chinese model of the internet, leapfrogging to smart phones directly. These are the users who don't want to open an email id, when they know that they can get on the internet with a phone number, who don't want to open an Amazon account, but buy and sell on Facebook, Instagram, Whatsapp. Or shop online for daily goods, but pickup or get deliveries from hyperlocal joints. Users, who question why they should have a credit card, when they can use a web based platform/ payment bank to transact. A large number of these users will not have access to formal banking and want to jump from cash to #ewallets . These are not the users who want to use the internet solely to research, but to socialize, communicate and live their lives. Users who will question the need to communicate in English, Spanish, French, Arabic or Russian, preferring to use their local language or better still more intuitive GUI's and basic understanding of numbers.

To me the opportunity of these markets will be what drives Web 3.0, a further democratization of information. Established firms will find it hard to reinvent themselves and identify the needs of these segments. And this is where Jio comes in. In his speech at the AGM of #Reliance in July 2015, Mukesh Ambani clearly spelled out the vision for Jio which encompasses not only Connectivity but also platforms. Reliance's experience in India, which also happens to be the largest of the #nextbillion markets is going to be crucial.

Yes, #dataisthenewoil , but to solve the needs of these new consumers, firms will have to think from a new perspective. I would call it the FMCGization of telecom. Just like Unilever and Procter & Gamble, redesigned their product portfolio keeping consumers in emerging markets at the center, it's time for a redesign of platforms. Jio has already ventured into this space with JioMarts in #retail, essentially bypassing the huge investments of large eCommerce players like Amazon. The idea is not to dis-intermediate the local kirana (mom-and-pop store) but weave them into the Jio ecosystem to deliver. I would also foresee Jio working very closely with WhatsApp Inc. to roll out payment solutions strongly. Success in a market with 1.3 bil consumers can mean a very different future for WhatsApp payment solutions. Similarly, one area I would expect WhatsApp and Jio to work intensively on is modifying WhatsApp into a superapp like WeChat . The new consumers waiting to get on the net are demanding, they want things on their own terms. For them, it is not going to be long before they discard PayPal, WhatsApp, Amazon, YouTube, Twitter, Gmail, Google Search/ Maps/ Graphs etc and prefer moving to a superapp like WeChat. In other words, these new consumers demand #convergence

So basically, what Facebook and Google, get in working with Jio, besides access to huge Indian market, data access to 1.3 bil consumers, is an extremely large captive lab to experiment with technologies that will bridge the gap with the next billion global consumers and Web 3.0

Writing on the future of Tech, is risky, and often ego-crushing. As risky as trying to predict financials. However, this play around Jio, is definitely more than access to Indian markets. It is worthwhile considering the implications of this new alliance on the the future of 5G networks rollout globally and for the evolution of Web 3.0