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Impact Of Jio-Facebook Deal
The deal will positively impact the valuation of Jio’s partnership with Facebook in the event it decides to go public. Overall, at a time when the COVID-19 outbreak has thrown the world economy in shambles, this union is a feel-good tiding.
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Three days after Facebook announced its stake in Reliance Industries, its retail e-commerce venture ‘JioMart’ gets its WhatsApp number 88500 and 08000.
In times of mass unemployment, stock market crashes and economic disruption, the Sensex climbed over 700 points. California-based technology and social media giant, Facebook Inc. declared the largest foreign direct investment (FDI) in India’s technology sector yet.
In a recherché union of giants, Facebook announced an investment of Rs. 43,574 crores for a 9.99% stake in Jio Platforms, a subsidiary of Reliance Industries Ltd., making Facebook the largest minority shareholder in Jio Platforms. The entire deal revolves around the development of e-commerce and e-payment business in India. Further, Jio and Facebook’s WhatsApp also entered into a commercial partnership agreement, which gives Facebook a strong foothold in India’s fast-growing market and access to over 388 million internet users – at par with Facebook’s 400 million users on WhatsApp, Instagram, and Facebook.
By virtue of this partnership, several local retailers and kirana merchants list their products on the marketplace model called ‘JioMart,’ and garner benefits of scale and convenience for their customers of home delivery. Several small businesses are already using WhatsApp Business to promote offerings, accept orders and gather feedback, among other things. So enabling consumers to access the nearest kirana stores that can deliver to their houses by transacting impeccably with JioMart using WhatsApp will be an epitome of how, with clean practices, both physical and digital retail can co-exist and flourish. Naturally, the duo’s plans, upon receiving regulatory approvals, are likely outperform even the most consumer-friendly fintech players in India.
Despite the unmatched access to digital India that the duo brings, the move will also facilitate Mukesh Ambani-led Reliance Industries significantly lower its debt – a pressing issue for companies today. As on December 31, the RIL group’s debt stood at Rs. 1,53,100 crore and with this monetisation of digital assets, RIL can also deleverage its balance sheet and aim to be a debt-free group by March, 2021. The deal will positively impact the valuation of Jio’s partnership with Facebook in the event it decides to go public. Overall, at a time when the COVID-19 outbreak has thrown the world economy in shambles, this union is a feel-good tiding.
In addition to strategic business advantage, the deal was perfectly timed to foray into the government-sanctioned payment infrastructure with digital payments on a rapid rise in the wake of the ongoing pandemic. Both companies have payment apps namely, WhatsApp Pay and JioMoney that can together dominate the market. This deal provides adequate leverage to JioMart to effectively compete against deep-pocketed giants like Amazon and Walmart (Flipkart) in India while potentially disrupting the digital payments segment, with the AliBaba-backed PayTM and Walmart’s PhonePe currently facing a financial setback.
Unfortunately, the deal has come in at a time when India is yet to pass the Personal Data Protection law. Collectively, the companies have access to a gargantuan repository of data and are likely to be closely scrutinized by the anti-trust watchdog, the Competition Commission of India. But experts believe that the move has already set stage for digital colonization. There are concerns that the duo will not only eliminate competition in the e-commerce segment by monopolising data but will destroy the concept of net neutrality by way of – predatory pricing, imposing content, and ultimately destroying other retailers. Additionally, Jio is in the talks of creating a super-app, which could also result in the creation of an ecosystem of apps. This could adversely impact not only other tech giants like Google and Amazon but also the Indian startup ecosystem, which is already struggling to compete with technology giants.
By harmonizing their strengths – Reliance’s mammoth distribution network and retail infrastructure and Facebook’s products and technologies – both companies are in a position to capitalize the repository of data while partnering with small kirana shops, as opposed to competing with them. While this will propel customers into online retail and digital payments with relative ease, what it will not ease is the criticism from the government and domestic lobbies, and the deal’s adverse impact on the e-payment, e-commerce giants and startups alike. At a time where India tightened its FDI Policies impacting Chinese investments, this move can be viewed as an example to strengthen ties between USA and India. On the flipside, this deal possesses grey areas which could defeat the purpose of Competition Commission of India (CCI) and Telecom Regulatory Authority of India (TRAI) and necessitates heightened vigilance. Whether this partnership succumbs to data privacy and monopoly concerns, follows suit of Amazon and Walmart’s illegal practices such as violation of FDI rules, predatory pricing, destruction of other retailers, or is truly a double-sided coup – only time will tell.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.