Facebook’s blockbuster deal for a 9.9% stake in telco Reliance Jio is inexplicable at best, and alarming at worst. The valuation of $5.7 billion for a minority stake in Jio Platforms, which makes the Reliance-owned company worth nearly $66 billion, comes amid the deepest economic uncertainty of our lifetimes.
It’s a bet on Reliance’s tepid offering: retail. Facebook shareholders ought to sit up and take note. And given Facebook’s data privacy record, Indian users ought to be wary.
Under the deal, Facebook has picked up a minority holding in Jio Platforms to leverage the use of its WhatsApp’s payment application and link that to JioMart and other retail offerings. At 9.99%, it’s a stake which would give Facebook hardly any minority shareholder protection.
That typically kicks in at the 10% mark, according to the Companies Act 2013. While WhatsApp’s Pay is still in the rollout phase, WhatsApp itself has 400 million captive users in India, which is more than the 388 million subscribers Jio has.
Reliance has never held a reputation for being soft on competition. Historically, very little has stood in the way of the conglomerate’s ambition. Facebook, too, has had its share of controversies.
Once you brush aside concerns of an uneasy partnership between two giants, what’s the opportunity on offer? According to both Facebook and Jio, the playbook is the ecommerce opportunity in India.
Some of this will come from linking the Whats-App payment service to JioMart. JioMart is an ecommerce platform to link small mom-and-pop stores in India. As it stands, JioMart can, at best, be described as a fledgling effort, much less a full-fledged offer.
It has services in all of three areas of Mumbai, according to its website. Given that, Facebook’s bet on a rich ecommerce future is riddled with many ifs and buts. In the post-Covid-19 world, when India reopens for business, ecommerce is expected to gain traction.
Still, we all know the economy will be a write-off everywhere in the world for a few years to come, shattered by unprecedented jobs losses from the lockdown. India isn’t escaping any of this, and the ordinary folks that make up Jio’s customer base are unlikely to be spending much.
Jio’s customers were won over a promise of free voice calls for life, tiny fees for data use, and smartphones for .`1,500. Jio is swimming with the bottom of the pyramid. It’s easy to conclude that this segment of users will be hardest hit during the impending economic squeeze.
Facebook must justify its rush to fork out nearly $6 billion for a slice of a company whose valuations could take a knocking, while everyone else is likely to go bottom-fishing.
Millions of Indian already pay for goods and services using a slew of apps, from the government’s RuPay to privately owned Paytm — which the gorilla demonetisation drive thrust on them.
Several of the small shops that Jio hopes to link have been using these platforms since 2016. There might be little incentive to switch, and any attempts to introduce exclusive services might invite anti-monopoly scrutiny, given the user base of Facebook and Jio. Besides, Reliance’s track record in retail hasn’t been inspiring.
It has formidable rivals in the ecommerce space with Walmart and Amazon, with deep enough pockets to compete. Facebook will also need to assure WhatsApp users, where the most candid exchanges happen, that none of the user information will be shared with Jio, or any other agency.
That’s a tall ask, given Facebook paid $5 billion for privacy breaches to regulators just last year, for sharing user information with Cambridge Analytica to allegedly influence the US elections.
In a robust democracy the size of India, the marriage of Facebook’s WhatsApp, available in multiple Indian languages, with the country’s largest telco is bad news on that count. This deal, despite its dazzle, is a puzzle that fits poorly as an ecommerce play. Indian citizens must be wary of what it portends, as must the regulator.
The writer is founder, Content Pixies