With this piece, we take a look at the interesting Facebook Jio deal that was clocked earlier in 2020. Post this deal, Reliance has gone on to do a lot more deals and if you’re looking to read about Reliance in-depth, check our Reliance case study out. This post only talks about the Facebook Jio deal and what it holds for the future of Reliance. Anyway, let’s jump right into the story.
An eagle’s eye on Facebook Jio deal
While we’re all sitting home, wondering what’s going to happen with the lockdown Jio and Facebook are planning real business. On 22nd April 2020 Facebook owner of three most influential apps – WhatsApp, Instagram, Facebook – in India invested $5.7 billion USD (INR 43,574 cr. – yes keep counting) to purchase 9.99% stake in Reliance Jio. Pushing the valuation of Jio now to $66 Billion!
One might wonder – why Jio? Facebook is a social media network and has good reach in the corners of the country via WhatsApp, Facebook, Instagram – it has 400 million users of WhatsApp, only in India! Which is a pretty good number.
To understand why Jio, we need to understand an initiative that Facebook was planning to implement in India called Free basics.
What was Free basics?
Say Clark (Facebook) wants to start a restaurant named Basek (pun intended – Free basics), in a local area (say India). You know Indian local areas, right? You’d typically have a few dudes selling Vada pav, Pav Bhaji, Pani Puri, Cakes – competitors of Clark. Clark’s restaurant has all these items and he’d decided to give these away for free – but only these items. Obviously, the local dudes would protest against this, since they’d lose all their customers.
But Clark has a plan. He changes the name of the restaurant to “Free Basek for everyone” and the moment that happens, the local dudes are deprived off the customers – I mean, who wouldn’t eat a free Vada Pav? Now, the local dudes close out and right after that– Clark now starts to charge the customers who visit and decides what he wants to sell to them. The customers now cannot return to the local vendors since they’re all closed. Clark now rules the world (well the local area, but why not).
An ambitious plan, eh? Only – it did not work. Do you see what’s wrong here? Facebook was only trying to provide free internet for the apps that were owned by them. This violated the basic tenants of Net neutrality (which in essence means equal access to all the internet websites). And owing to a lot of opposition from the other telecom players – TRAI banned Free Basics in 2016. Clark retreated only to return again.
The other big thing about 2016:
Do you know what else happened in 2016? Jio happened. Jio entered the market it stormed the already vulnerable telecom players wreaking havoc. A lot of small players died and the big ones combined (Vodafone-Idea). The normalcy has not been achieved even until today – Vodafone-Idea continues to wrangle itself in debt.
Feel any connection?
Facebook has been trying to enter the Indian Market with its ambitious WhatsApp Pay. But, regardless of how well penetrated WhatsApp is in the market, it would have been tough to compete with the players like Google Pay, Phonepe and Paytm with the government backing and local penetration these apps have. Facebook understands the potential and importance of having a strong network in India. Now, what better network than the richest man of the country himself? From fashion to electricity to telecom – you name it, Reliance is everywhere.
The man has good relations with investors and the Government (Yep, that’s it). What better time to help this man fulfill the promise he made to the investors? (Mukesh Ambani promised that Jio would be debt-free by March 2020, the debt of 40,000 cr and Facebook paid 43,574 Cr!). Too many coincidences, Gah!
What this deal could mean for India?
- Jio-mart: Reliance has been trying to onboard the local Kiranas on their app, that is, a local shop next door where you generally would walk up to buy milk, groceries when your mom yells at you (pre-lockdown) will now deliver the groceries to your doorstep
- WhatsApp Pay: Yep, with this partnership – WhatsApp may get the government’s nod for embedding payments and hence will become a widely used payment system for this wide network of small Kiranas (30,000 stores). WhatsApp pay is poised to be launched somewhere in June and will prove out to be a problem for other UPI apps – especially Paytm that already seems to be on the verge of collapse
All in all, this is no way a simple deal – a lot of changes may happen. One may hypothesize a scenario wherein you’re in the middle of a conversation talking to your friend about buying a trimmer on WhatsApp, the next thing you know there’s an Advertisement of a trimmer popping up. And with the data security problems, Facebook has been into we may be looking at something scary.
But don’t you worry, we’ll keep you posted about what goes on around the time, head here for more.