The FAANGs are back and sharper: Global tech giants' 10-year bet on India

Google and Facebook have all-weather partner in Jio. Apple will manufacture in India. Amazon is cementing its dominance. Latest moves by tech giants will have a lasting impact on India's digital space

The agenda of each of the 13 investors in Jio Platforms is amply stated. Facebook will get a piece of Jio Mart’s e-commerce on WhatsApp. Google is promised a foothold in the feature phone market. Intel and Qualcomm have a big buyer for their chips. And the financial investors are in for handsome bonuses when Jio IPOs hit the market in some two-three years.

Jio’s stake sale, where it pared 32.97 per cent in one of the largest private transactions of its kind in the world, promises a paradigm shift in India’s technology landscape. Many feel that Jio may rise to monopolistic stature in internet services, while others say it will pay its debt by growing the market for everyone.

For Google and Facebook, it was about betting on the right stallion. Even as they continue standalone journeys, Google India’s growth has slowed (See table: Earnings of FAANG companies), and Facebook has had trouble launching new products (such as Free Basics and WhatsApp Pay). Look at it another way, Google and FB are teaming up to fend off Amazon, an outlier among FAANGs that has seen superior growth in e-commerce and is confidently moving into other areas like fintech.

There is also a China angle to this matching-making story. “India, for its unique landscape, has become a battle ground for Americans and Chinese,” said serial entrepreneur and investor Rajesh Sawhney. Over the past decade, Chinese companies have made strong inroads into India, which has challenged the grip of US firms here. American companies have specifically faced a beating in the smartphone market, in Chinese hold 90 per cent share, and in which Apple has been reduced to one per cent. TikTok's rise to prominence, before it was banned, is another example.

In the FAANGs vs BATs (Baidu/ByteDance, Alibaba and Tencent) narrative, there is one telling difference. The US firms have grown their business directly in India, while the Chinese have operated through proxies. For instance, Alibaba’s biggest investments – Big Basket, Paytm, Snapdeal and Zomato – are up against US competitors like Amazon and Google Pay. Tencent, a steady backer of internet companies like Gaana and Dream 11, has not launched direct businesses, either. While hard figures are not available, several experts said the investments in India by FAANGs, barring Amazon, are significantly lower than what BATs have invested here.

Wary of these threats, the FAANGs – a popular acronym to denote Facebook, Amazon, Apple, Netflix and Google – are chalking out long-term strategies to win in India. Some of these companies are betting on strong Indian partners, others are trying tailor-made solutions for India, and all are working to keep the local government upbeat by promoting local manufacturing and jobs. At the moment, the anti-China sentiment and regulations have also tilted the balance in favour of the Americans. Can FAANGs capitalise? And how will this play out for Indian start-ups and industry?

Commerce ambition

Google and Facebook, for all the data they have on consumers, have long relied on advertising as their major source of earning. In India, the Rs 14,000-odd-crore online ad market is only one-fourth of the entire advertising pie. This is set to shrink further, owing to the pandemic, as marquee advertisers curtail marketing spends. And that’s why there is an urgency to diversify.

In May, Facebook launched ‘Shops’, a tool to create online store-fronts on Facebook and Instagram and put up catalogues. The company said it will allow ‘sellers’ to communicate with ‘buyers’ over WhatsApp and Facebook Messenger through a plug. Facebook, analysts say, is readying WhatsApp and Instagram as commerce platforms, hoping to cash in on their high reach.

This strategy is evident from its recent bets. Facebook has backed Meesho, the e-commerce company focused on home-based sellers in India, partnered with Shopify in the US, and has emerged as a major e-commerce platform in Bangladesh. In India, the holdup is WhatsApp pay, which is stuck in regulatory hurdles. Once launched, WhatsApp Pay could become the de-facto digital payments mode for Indians, and the final piece in the puzzle for Facebook commerce.

“For Facebook, the biggest priority is WhatsApp pay,” said Sanchit Vir Gogia, founder of market intelligence firm Greyhound Research. “The moment WhatsApp pay comes in, the commercial angle becomes really large.”

A Facebook India spokesperson did not respond to a request for a comment. In an earnings conference call on July 30, Facebook chief Mark Zuckerberg said, “A lot of people use WhatsApp, especially in India. There’s a huge opportunity to enable small businesses and individuals in India to buy and sell things on WhatsApp. We want to enable that.

“That starts with enabling payments. A big part of the partnership that we have with Jio will be to wire up and get thousands of small businesses across India on-boarded onto WhatsApp, to do commerce there,” said Zuckerberg.

Google is fighting another battle. Over the years, some of the search traffic on Google has shifted to Amazon, according to Searchmetrics. People who would look up an item on Google are now directly doing it on Amazon, and this has led advertisers to also move ad dollars over the Amazon. A 2019 study by US marketing analytics company Nanigans said one in three retail ad spenders had moved budgets from Facebook and Google to Amazon, as it “offered a stronger return on investment” and “direct purchase history” of users.

Even though the trend hasn’t played out as strongly in India, Google is preparing for the eventuality. According to several experts, Google is investing heavily in Google Pay, which recently topped the charts with 75 million transactions in May. The company will soon offer loans via Google Pay. Besides, it is learning more about Indian shoppers through start-up acquisitions, such as that of Dunzo.

Amazon did not comment on this story. A spokesperson reiterated remarks made by Jeff Bezos on his visit in January where he outlined three focus areas for Amazon India: one million jobs by 2025, digitisation of SMBs and pushing Indian imports to upwards of $10 billion.

A Google spokesperson said the search company’s focus rests on getting more users and businesses on to the internet.

“Today, India has made huge progress on connectivity with improved infrastructure and low-cost data, enabling over half a billion Indians to come online. But access is only useful if there are helpful products that users can gain from. We’re thoughtfully building products that can help Indians get more out of the Internet,” said a spokesperson in an emailed response.

‘Swadeshi’ touch

Over the years, Google has built local languages commands on Google Maps and virtual assistants, and many digital tools, including a website builder, for small businesses. For Google, a key theme has been to push its services among new first-time internet users in the hinterlands. The Jio partnership – where Google will develop and ship a new feature phone operating system for the masses – falls under this gameplan.

“We'll enable information in local languages and apply technology and AI to important areas like health, education and agriculture. Jio platforms is the first partnership agreement in the ($10 billion) fund and will work with them to help millions of users in India become owners of smartphones,” Sundar Pichai, chief executive officer, Google Inc, said in an earnings con-call on July 30.

In mobile devices specifically, the Indian government has been batting for local manufacturing. This had, in the recent past, led to Samsung setting up its biggest phone assembly plant in Noida last year, and Xiaomi calling itself “more Indian” than other Chinese smartphone brands. Apple, which has seen its market share reduce to one per cent according to Counterpoint Research, has taken the cue. Foxconn, its largest contract manufacturer, recently committed $1 billion to expand its assembly plant in Tamil Nadu in order to produce more locally-made models. Another manufacturing partner, Wistron Corp, is also reportedly investing $165 million in a facility off Bengaluru, while Pegatron is also planning its first local factory.

Apple declined to comment on this story.

Analysts, however, point out that Foxconn’s move is driven by the Apple’s urgency to produce cheaper phones for India, and is a consequence of deteriorating US-China relations. In February, the government added another 10 per cent to the existing 20 per cent import duty on mobile phones, making all foreign-branded phones more expensive. Apple, which exists in the premium category, is also warming up to online. After over a decade of relying on third-party sales channels, it opened itself to online orders in February early this year. And in May, it began offering Mac computers on custom configurations, something it earlier did only in the US.

In the content space too, executives have understood that the strategy to win is a “localised” one. With dozen of OTT video services in the market, differentiation is the key. If 2017-18 was about getting on-board regional-language content, it is now about producing exclusive shows in India. In December, Netflix said it would spend Rs 3,000 crore on developing content in India and for India. Further, given Indians’ propensity to watch content on phones, Netflix launched a mobile-only subscription plan as an India-only offering in May.

Netflix did not offer a comment for this story.

High entry-barrier

Jio’s entry caused a cased a wave of consolidation. Idea and Vodafone joined hands, and several smaller players such as Reliance Communication folded up. The same happened in e-commerce too, with the rise of Flipkart and Amazon India. Experts are divided on Jio’s impact on the broader internet ecosystem in India. Some say that given its presence across a plethora of services and its deep pockets, Jio creates a high-entry barrier for upstarts, while another set of people believe India is large enough to accommodate many large players.

“Indian start-ups don’t have to worry about the Jio impact in the near term. There is always scope for innovation. We will see how it plays out. Indian market is large enough. The telecom market is something I am worried about. It may become a duopoly,” said Sawhney. He added that while Jio has only made small acquisitions so far, it has the appetite to gobble up serious competition--- something that Facebook did splendidly in its home market.

The Jio deal has in fact opened up the Indian market for large pools of foreign capital, said Sudhir Sethi, founder of Chiratae Ventures, one of the top three venture capital firms in India. “This is a proxy for more late-stage foreign capital coming in.” Sethi also said mentioned that with Jio, India may finally be able to move away from Chinese internet services, which he does not trust.

But Jio threatens local competition due to the very fact that its tentacles spread across most major internet services. The list is worrisome: education, payments, telemedicine, media production, video and music streaming, retail, video conferencing, and smartphone manufacturing. “The biggest and cheapest telecom network, now with the biggest social media firm, is a data monopoly in the making,” said a senior internet analyst, requesting anonymity.

“It is true that Jio will cross-leverage with Facebook and WhatsApp in many different ways, and that may hurt some companies,” said millionaire entrepreneur Bhavin Turakhiya. “But, more often than not, a rising tide lifts all.”