• Facebook acquired 10% shares in Jio Platforms (the e-commerce and digital service arm of India’s Reliance) for $5.7 billion. The deal will have to be approved by competition regulators
  • The collaboration between WhatsApp and e-commerce platform JioMart shows great potential – creating an Indian equivalent of WeChat, a combination of messaging, payments and e-commerce.
  • This is not a transformative deal yet: Facebook is a minority financial partner in the company, the two companies remain largely independent of each other.

Facebook this month made the largest single investment in its history by acquiring a minority shareholding in Jio Platforms for $5.7 billion.

It is important to note: Jio Platform is not the same as Reliance Jio, the newcomer mobile network operator in India. Reliance Jio – the leading Indian mobile operator with 388 million subscribers – will continue to remain a wholly owned subsidiary of Reliance Platform.

Jio Platform is the separate container of “digital life” apps from e-commerce, to digital content. The deal has the potential to strengthen the path to monetisation for WhatsApp: allowing business to communicate with their customers, pay and transact, and deliver orders all through a single platform.

Why would two these two companies join forces in India? There is a story to be read between the lines of their strengths and weaknesses in the Indian market.

The two are very strong, but they are both suffering. Marriages of conveniences are not always successful – this is not a transformative deal, and will leave Facebook as a minor financial position in the company. Overall, the real deal will only take place if the two companies really manage to co-operate equally. Given their pasts that does not seem a sure thing.

In the announcement both Facebook and Reliance point out that merging WhatsApp messaging solution and the JioMart would be a boon for small Indian business. The potential is very high, but the integration is yet to be built across the two companies.”

Facebook: after many attempts, a partnership to expand international monetisation

Facebook is very strong in India – it has 400 million customers across WhatsApp, Instagram and Facebook itself. However, monetisation in India and generally across Asia Pacific has been a sore point for the Californian company.

While North America accounts for around 10% of Facebook users, it contributes almost half of revenue. Facebook has had historically the lowest revenue contribution from Asian users. Now, the social media empire needs new markets to keep growing as North American and Europe looks close to maturity.

The CEO of Facebook, Mark Zuckerberg, tried China, the largest Asian market. He set out to learn Mandarin and made multiple trips to China, but the great ‘Chinese Firewall’ policy is keeping the domestic market away from big international players. India is the next best thing in Asia. Facebook’s courtship of the Indian market has been long but not fruitful as yet.

Four years ago, Facebook tried to enter the market offering free internet to India’s 1.3 billion people with Free Basics. Critics and the Indian government saw this as an attempt to force a digital ecosystem dominated by Facebook – and the service was banned in 2016.

Recently, Facebook has been at loggerheads with the Indian government over WhatsApp as well: the government demanded that WhatsApp stop its encryption to allow lawful intercept by police. However, despite the many attempts Facebook still see India as a testing ground for its companies.

A WhatsApp payment service is currently in pilot in the country, and Facebook is also looking at the market for his other payment project, the crypto-currency project Libra.

Zuckerberg has said that payments and commerce are a priority, representing a major business opportunity for the company moving forward. In the announcement both Facebook and Reliance point out that merging WhatsApp messaging solution and the JioMart (the e-commerce platform aimed at grocery stores) would be a boon for small Indian business. The formula is not new, it is a copy of what WeChat successfully offers in China: a super app with messaging, payments, and e-commerce merge into one.  The potential is very high, but the integration is yet to be built across the two companies. Surely, Facebook must think that trying again with a strong local partner will provide a much easier entry to the Indian market.

Reliance: cash is good when oil is low

Mukesh Ambani is the major shareholder of Reliance, the oil group, , and through that he controls Reliance Jio, the telecom arm, and Jio Platform, digital apps. When the name Jio was chosen it was supposed to denote the other side apart from the oil business (the name is the word “oil” mirrored). Today though, with oil prices at an historic low, reliance group feels the founding of Jio Platform an onerous business.

The expansion of Reliance group in telecom, digital and retail has caused its debt to surge to $40 billion as of September 2019 – and the company is now planning to cut it to zero. However, the oil and chemical business is not the cash cow that it used to be. The injection of 6 billion for the Jio Platform comes at the right time. Reliance is not underselling the business: the valuation is at 44% premium of what the internal estimates were until 3 months ago. Reliance is also looking at other deals to bulk its finance, it is also awaiting approval of a $15 billion deal to sell 25 percent of its energy business to the Saudis.

Is this a possible collaboration?

This partnership starts with a difficult background, the two companies have been on very different position on a multiple of topics. Everything is possible, but the two businesses will have to work hard to align completely.

The New York times reports a joint interview to Anshuman Thakur, Jio’s strategy chief, and Ajit Mohan, Facebook’s managing director in India jointly saying that the two companies have ‘different perspectives on some issues but that would not preclude them from working together in other areas’. Mr. Ambani has been for long an advocate of “India First” urging regulators and politicians to favour local companies over international companies such as Facebook or Amazon. Ambani went further saying that personal data of Indian citizens should stay in India and been controlled by Indian companies. “We will collaborate on some” Mr. Mohan said. “We will compete on many”.

It looks like the collaboration may already be off on the wrong foot…

Dario Betti

MEF CEO

  

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