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Facebook invests USD 5.7 billion in Reliance’s digital arm Jio Platforms

Facebook-owned WhatsApp will enable Reliance’s e-commerce venture JioMart.

In a masterstroke, India’s largest conglomerate by market cap Reliance Industries and Silicon-Valley based social networking giant Facebook have joined hands to tap India’s massive digital commerce opportunity that has become more lucrative at the time of the novel coronavirus outbreak.

On Tuesday, Facebook announced it has invested USD 5.7 billion (INR 43,574 crore) in Reliance’s digital arm Jio Platforms—the largest foreign direct investment (FDI) in the technology sector in India—for a 9.99% equity stake.

The four-year-old Reliance Jio that disrupted the world’s second-largest telecommunications market with its dirt-cheap data plans to emerge as the market leader with 388 million subscribers, is a wholly-owned subsidiary of Jio Platforms. Simply put, Jio Platforms is an umbrella entity that brings Jio’s connectivity platform together with its digital ecosystem comprising of devices, apps, content, and services.

Facebook’s co-founder and chief executive officer Mark Zuckerberg in a Facebook post said India is in the middle of a major digital transformation and that organizations like Jio have played a big part in getting hundreds of millions of Indian people and small businesses online.

“This is especially important right now because small businesses are the core of every economy and they need our support,” Zuckerberg said. “With communities around the world in lockdown, many of these entrepreneurs need digital tools they can rely on to find and communicate with customers and grow their businesses.”

“This is something we can help with—and that’s why we’re partnering with Jio to help people and businesses in India create new opportunities,” he added.

In the post-COVID-19 era, “comprehensive digitalization will be an absolute necessity for the revitalization of the Indian economy,” Reliance said in a statement.

According to the investment deal, Facebook’s chat platform WhatsApp will support Reliance’s e-commerce venture JioMart that connects small businesses to customers. Reliance said it aims to empower India’s 60 million micro, small, and medium businesses (SMBs), 120 million farmers, and 30 million small merchants.

“In the very near future, JioMart, Jio’s digital new commerce platform, and WhatsApp will empower nearly three crore small Indian kirana shops (neighborhood stores) to digitally transact with every customer in their neighborhood,” Mukesh Ambani, the chairman and managing director, Reliance Industries Ltd, said in a video statement.

This means, customers “will be able to order and get faster delivery of day to day items from nearby local shops. At the same time, small kirana stores can grow their businesses, and create new employment opportunities using digital technologies.”

“By bringing together JioMart, Jio’s small business initiative, with the power of WhatsApp, we can enable people to connect with businesses, shops, and ultimately purchase products in a seamless mobile experience,” Facebook’s Chief Revenue Officer David Fischer and VP and Managing Director, India Ajit Mohan, said in a blog post.

Ambani added that, in the days to come, this collaboration will be extended to serve “farmers, SMEs, students and teachers, healthcare providers, and women and youth.”

The opportune timing

According to analysts both Reliance and Facebook, are looking to fulfill their e-commerce dreams with this collaboration.

“Facebook has been trying to get into e-commerce for some time, starting with Facebook Marketplace and then with its investment in social commerce platform Meesho. And Reliance has been moving towards making a digital ecosystem, with e-commerce as a key part of it,” Satish Meena, senior forecast analyst at Forrester told KrASIA.

With this deal, “Reliance will get access to WhatsApp as a platform where they can access both merchants and sellers without forcing them to install a new app. So it’s a free customer acquisition for them,” Meena said. “For Facebook, their aspiration is WeChat, which they want to build. They have similar tools as WeChat but they don’t want to put manpower on the ground. Now they have Reliance to do that. They want to ultimately monetize WhatsApp as a commerce platform and WhatsApp Pay will play a deep role in it.”

Meena said the duo would make things difficult for those who are into online grocery.

“It has been difficult for Amazon and Flipkart to deliver groceries during the lockdown. They will have to rethink and redesign how they deliver groceries to customers now because their distribution is not up to the par,” he said. According to Meena, the competition for them will get fiercer, as in addition to the distribution and supply muscle of Reliance Retail, JioMart now has access to WhatsApp’s over 400 million users.

The development comes three days after the country issued new foreign direct investment (FDI) regulations for countries which share a land border with India. The regulations, which is largely targeted at China, stipulates that any investment into India from bordering countries would require a mandatory government approval.

At a time when Facebook-Reliance duo have become stronger, Chinese companies like Alibaba, Tencent, and ByteDance have their hands tied due to the new FDI norms. The Chinese consumer tech firms have been keeping a close eye on India’s rapidly growing digital commerce and payments market.

“If you look at it, this particular announcement comes a few days after India’s FDI norms clampdown. Now for Chinese companies to invest in the Indian startups or increase the stake in their portfolio companies or even launch their competitor against this partnership is going to be that much more difficult,” Jayanth Kolla, founder and partner of Bengaluru based business consultancy firm Convergence Catalyst, told KrASIA.

“Paytm will also be impacted because one of its biggest investors is Alibaba. And because of the new FDI norms, raising subsequent funds from their biggest investor is going to be much more difficult now.” Moreover, Paytm, which has been racing toward becoming the first super app in India, may now have one more overwhelming contender.

“The companies (Reliance-Facebook) have announced Whatsapp is going to be at the center of the digital commerce platform. This could be just like how WeChat started as an instant messenger and evolved into a super app,” Kolla said. “There will be an impact on Chinese internet companies as well. Now Tik Toks, Helos, Bigo Lives of the world might see an increase in their customer acquisition and engagement cost.”

Meanwhile, the social networking firm that uses purchase intent and sentiment analysis capability for targeted advertisements on Facebook and Instagram, might extend it to JioMart, Kolla said.

“Depending on people’s WhatsApp interactions and purchases, JioMart, with access to 30 million mom-and-pop stores, can start showing targeted deals on its platform directly,” he explained.

This is likely to be a win-win situation for Reliance—which has been preparing to reduce its debt to zero by early 2021 and roll out its own e-commerce platform for over a year now—as well as for Facebook, which can leverage Reliance to tackle Indian regulatory hurdles better.

Facebook had to struggle for almost two years to get permission this February to launch WhatsApp Pay for masses. Previously, in early 2016, the social networking giant had to wrap up its ambitious Free Basics plan, which was aimed at allowing access to its platform and some other websites without a data plan.

With this handshake, Reliance and Facebook will now have a chance to dominate India’s soon-to-be USD 1 trillion digital payments and the digital commerce market slated to reach USD 89 billion by 2023.