One-stop shop

Jio-Facebook deal would change India's digital economy

Social media giant Facebook’s investment in Jio Platforms has the potential to transform India’s retail landscape by combining easy digital payments with seamless social media connectivity. This is due to the synergies between two groups, which are individually dominant in different spaces. Jio Platforms is the holding company of all the digital properties of the Mukesh Ambani–controlled Reliance Industries (RIL) group, including telecom service provider Jio Infocomm. Facebook owns WhatsApp and Instagram, along with its eponymous social network. Jio has 388 million subscribers, comprising well over 50 per cent of India’s 635 million mobile broadband users. Facebook has 330 million active Indian users and WhatsApp over 400 million. WhatsApp also recently launched WhatsApp Pay, a digital payment platform. The Reliance group has a strong presence in retail, and digital entertainment, including holdings like JioSaavn and JioTV.

Facebook is paying Rs 43,574 crore for its 9.9 per cent stake in Jio Platforms, which implies a valuation of about $61 billion (Rs 4.63 trillion) for the RIL subsidiary. Though the valuation appears rich, as Jio is yet to show how it is going to make money from its large consumer base, there are enough reasons for the deal. The key synergy: The Jio telecom service could, with the help of Facebook and WhatsApp, become a vertical integration play, with content, payments and commerce, all on offer to consumers, alongside a social media presence and voice and data connectivity. Jio could strive to become a one-stop shop for e-commerce, social media consumption, instant messaging, and also digital payments. The model could be the Chinese app, WeChat from Tencent, which services over 1 billion users, who all use it for multiple purposes. Mr Ambani drew a signpost to the likely future when he said JioMart, combined with WhatsApp, would empower 30 million neighbourhood kirana stores to digitally transact with their customers. According to him, this deal would enable Jio to seamlessly connect people with local businesses and also complete their transactions online. This hyperlocal penetration on a massive scale could utterly change India’s retail and e-commerce landscapes. The statement from Facebook founder Mark Zuckerberg also underlined the rationale for the deal: India has more than 60 million small businesses. What he didn’t say is that Facebook needs to desperately expand in new markets other than the US and Canada, which contribute almost half its revenue.

But policymakers need to examine the deal closely. This dominant pair could easily become a monopolistic entity that wipes out all competition, just as WeChat has in mainland China. It should remain possible for consumers and retailers to exercise their choice and use alternative services and platforms to carry out digital transactions and access social media. There are also concerns about the sanctity of the vast amounts of private data such an entity would inevitably gather about its users, given the end-to-end involvement. That data must be securely stored, and it should not be misused, even in the absence of a long-pending Personal Data Protection Act. Policymakers should also ensure that the principles of net neutrality are not breached because it would be easy to allow preferential speeds for preferred apps. That said, this deal could substantially disrupt India’s digital economy. It also enables Jio to wipe substantial debt off the balance sheet, and gives Facebook an entry into a new space.