The Jio-Facebook Deal

Jio Platforms Limited, a wholly owned subsidiary of Reliance Industries Limited, started in 2016, is India’s biggest telecom provider emerging as a fully digital platform. Jio’s vision is to enable a digital India for 1.3billion Indians and Indian businesses, especially small merchants, micro businesses and farmers by bringing together Jio’s leading digital apps, digital ecosystems and India’s 1^st high speed connectivity platform under one umbrella. Seeing the emerging tech companies, till date Reliance has invested Rs.3.5lakh crores in Jio, having 380million subscriber base, making it data focused. Reliance Jio Infocomm Limited, which provides connectivity platform to over 388million subscribers, is a wholly owned subsidiary of Jio Platforms.

Though Reliance had huge investment competitive advantage, it resulted into high debt of Rs.40000 crores from Jio itself out of Rs.1.53 lakh crores total debt of Reliance. Adding, it has also invested into AI, ML, Cloud, IOT, AR, VR and Block chain technologies. It has a huge presence in Home-Broadband, Enterprise-Broadband and Mobile Broadband. Having invested into startups like haptik, kaios, embibe, hathway, etc, they also have Jio apps out of which only Jio Savan is doing well. Reliance did try to recover debt by selling its part of the oil business to Saudi Aramco at $75billion, but due to changing oil prices it didn’t work. Though Jio has been executed at a  large scale, having great geographical presence. However, unlike Google and Paytm, Jio is not a technology focused company so it lacks technology. With these reasons, Reliance was in the search of someone who is:

·       working and executing at a large scale.

·       having access to huge capital so that it can invest.

·       technical know-how, technology focused giant. 

Facebook, started in 2004, is an American social media and networking giant having a market cap. of $500 billion.  98% revenue comes from Ads, but with the increasing players in the market, sustainability of Facebook’s ads business was at risk. Recently it also had negative publicity for data privacy cases. They were unable to expand Like Amazon and Google. Facebook tried to increase its value-added services in china but it failed. Facebook tried to bring in WhatsApp payment in India but that too didn’t get the approval. After several trials Facebook found that India being the 2nd largest market after China, is the best market to expand. But unlike other countries India lacks strong internet connectivity. To overcome this, Facebook launched free basics Internet.org in 2015 with its partners providing free internet, it also thought of internet beaming through satellite, plane and hot air balloons but all failed miserably. So, Facebook was in the search of someone who is:

• local partner. 
• having massive offline presence.
• having biggest telecom network which is executing at a large scale.

Looking at the relevance of FDI which will increase post lockdown and India will become a very eligible bachelor supporting ease of doing business. On 22^nd April, 2020 Jio Platforms Limited and Facebook announced a win-win Reliance Jio and Facebook partnership, a deal where two needy came together. It was a great move by Reliance and Facebook under this crisis of covid-19. Avoiding Oil & Petroleum business, it was Facebook’s clever yet safe move. Though it is not an exclusive deal, but it is unprecedented in many ways. 

• Facebook invested Rs.43574 crores into Jio Platforms. 
• This investment valued Jio Platforms at Rs.4.62lakh crores pre-money enterprise value (65.95 billion, assuming a conversion rate of Rs. 70 to a US dollars). 
• This investment valued Jio Platforms amongst top 5 listed companies in India by market capitalization.
• Facebook’s investment will translate into 9.99% equity stake in Jio Platforms on a fully diluted basis (total common shares of a company that includes issued or outstanding shares and the shares that could be claimed through the conversion of convertible preferred stock or through the exercise of outstanding options and warrants)
• Investment is 1% of the total market cap. of Facebook. 
• This is the largest investment for a minority stake by a technology company anywhere in the world.
• It is the largest FDI in a technology sector in India. 

Whats app has subscribers but no transactions, Jio has transactions but lacks technology. As Amazon, Walmart and other e-commerce giants were ignoring local kirana stores. After testing Jio-Gst, Jio Platforms wanted to launch Jio-Mart, connecting 6 crore small merchants and 3 crore kirana stores by creating a warehouse , as it is already into Reliance Retail. Due to the proximity of kirana stores to the destination from where the order is placed , delivering faster than e-commerce giants. For order placements through mobile, Jio mart will be using Whats app as a payment gateway, as it has potency like no other app with 400 million subscribers (which is 40% of the total mobile wireless subscribers in India) and the least learning curve. It will help local business and Jio to expand and will eventually benefit Facebook as it wanted to expand into the payment business for increasing revenue 

India having 560 million internet users growing at a fast rate and mostly given by Jio, by creating one Super App both giants will be expanding by giving Credits to retailers and loans to customers and other value-added services broadly classified as 6Cs:

• Connectivity – broadband
• Community- messaging & calls
• Content – news, entertainment, education
• Commerce – physical, digital, games
• Currency – wallets (Whats app pay and Jio pay)
• Capital – banking services 

Reliance after bringing in Microsoft Azure and Cloud, which were into supporting low cost startups, wanted to have a business revolution and Reliance after bringing in Facebook wanted to have a consumer revolution.

Thank you,

Regards,

Rushil Patel,

Kautilya,

IBS Mumbai.