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    Early notes on Jio-Facebook deal: Implications and the second-order effects

    Early notes on Jio-Facebook deal: Implications and the second-order effects

    Early notes on Jio-Facebook deal: Implications and the second-order effects
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    By Sajith Pai   IST (Updated)

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    Consumers could have the power to order and make payments for almost everything via WhatsApp from the nearest kirana store or local businesses that can supply products and services to their door step.

    On April 22, Facebook announced it was investing a $5.7-billion for a 9.9 percent stake in Jio Platforms -- an entity that owns Jio mobile service, broadband internet service, apps and products, including the JioSaavn music app. Jio is India's largest mobile telecom operator with 388 million subscribers. It achieved market dominance in just over three years. The telecom giant has reshaped the Indian digital sphere with low-priced data.
    For Facebook, India is its biggest market for both Facebook.com + mobile app (around 250 million daily average users) and WhatsApp with around 400m DAUs.
    When two massive companies join hands, strong signals are sent out, the strongest of them today – from the barrage of news reports and soundbytes – was that of commerce, especially the upcoming Jiomart venture that Reliance Jio has been working on.
    A Morgan Stanley announcement document that the author accessed – marked ‘Not for Retail Distribution’ – said that consumers will have the power to order and make payments for almost everything via WhatsApp from the nearest kirana store (local mom and pop grocery stores; around 12 million of them) or local businesses that can supply products and services to their door step.
    How would this partnership work?
    The partnership could play out in support of Reliance's commerce initiative. Do note that no specifics have been announced so far and these are possible ideas that could work for both companies.
    • WhatsApp for Business has features such as catalogue, automated replies (and of course payments) which would be of great value to kirana stores/small businesses that are part of the JioMart network.
    • Consumers will be able to use the Jio app to source supplies from the nearest stores, accessing possibly a catalogue via a WhatsApp API, and then transact via the Jio app and pay via WhatsApp's butter-smooth payment feature (which has not yet been rolled out universally).
    • As the JioMart platform takes off and increases in scale, there could be interesting possibilities that could emerge. For example: Jio could helping kirana stores source supplies -- say by aggregating orders across stores and negotiating with FMCG/CPG companies such as Unilever, P&G, Nestle, ITC etc. Sourcing could be frictionless given that JioMart has access to ordering data and is installing POS (point of sale/billing) machines at the general stores. Another possibility could be using WhatsApp APIs to group buy akin of China’s Pinduoduo, effectively riding on the messaging platform’s social graph. Loyalty points to consumers could be another angle - imagine taking Rs 1,000 advance from consumers as a JioClub charge, equivalent to that of Amazon Prime. Selling ads is another idea. Clearly, there are a lot of ideas that could be integrated here.
    • There is some talk about a “super app” in certain reports about the partnership, which again is not clear. Moreover, there is no word on whether WhatsApp would be the super app or will it be a separate Jio app.
      Beyond commerce, there is scope on Edtech and digital media. We are aware that Jio owns Embibe and has steadily been investing in it. Jio also owns JioSaavn, a leading online music subscription platform, and has been building its JioCinema app. Facebook, of course, is the dominant digital media company. Recently, it announced an investment in Unacademy, seeing education video and Edtech as a key growth segment in the Indian digital sector, which are additional synergy areas to mine.
      Deal drivers
      There are of course key motivators on both sides.
      • Jio gets access to the most powerful, useful and universal app in the country
      • Whatsapp – which is effectively the Indian internet. It would be an astute idea, if the companies can leverage WhatsApp's social graph and use it to drive demand for purchases from nearby stores. They can use the battering ram of consumer demand to prise open kiranas and onboard them easily via WhatsApp.
      • FB gets access to a carrier partnership. This means access to a whole lot of data - including information about handset, location, data usage, spending data etc. The accessibility to serve ads will also heighten.
      • Jio would get cash, which is welcome as it could be used to shave the $5.7 billion debt, and it is a win-win situation for FB to have a partner in Reliance.
        Second order effects of the deal
        If JioMart becomes a monster hit, it would reshape India’s ecommerce space and the kirana landscape. Let’s examine the second-order effects of JioMart's success on the various constituencies impacted by the deal.
        1. Ecommerce + payments players: These include Amazon, Walmart-Flipkart (both ecommerce and number 2 mobile payment provider PhonePe), and Google (GooglePay, the number 1 mobile payment app). For these players, JioMart's growth and WhatsApp payments getting approval, would mean a reduction in their marketshare. Nonetheless, their market would grow, and despite a lower share, their volumes and revenues could be higher. But the two-horse race will now have to accommodate a third player.
        One sector that could be safe for now is the Foodtech space. Delivery is a key moat here and Reliance would need time to set up its delivery infrastructure.
        2. FMCG companies such as HUL, Nestle, ITC and others: If JioMart grows rapidly and uses its newfound heft to aggregate orders and approach FMCG companies for better terms, there could be some impact on the margins of these brands. This is much the same way they had to adjust their margins with the onset of modern retail and ecommerce. But the impact of this would not be massive.
        3. The startup world, retailtech/kiranatech space: We can dissect the retailtech space into three sub-verticals.
        A) Demand generation and fulfilment: Swiggy Supr, Dunzo etc help customers discover and/or source supplies and deliver the same. From Blume's portfolio Dunzo and LoveLocal are big players here.
        B) Retail ops including retailer enablement and customer engagement: Plan stock keeping units, mine data to source and sell better to consumers. Snapbizz, a Blume portfolio company which sells a POS system falls in this slot. Other example could be retail analytics player like Peel Works that help them source supplies. This segment is the smallest of the retail tech space as there are no large players, but those such as Manthan, Capillary are possibly the biggest, but serve modern and larger format retail instead of kiranas.
        C. Sourcing/supplies: This is the biggest and most richly funded part of retailtech - helping these kiranas source supplies. Udaan, Jumbotail, ShopKirana, Peel Works all compete here.
        The big impact of JioMart will be on the last sub-vertical. JioMart would look at building a massive B2C ecommerce revenue stream by routing all consumer demand to kiranas, and then use data from the POS machine and app to help these kiranas source better. Udaan and Jumbotail serve a small part of this space. However, there is scope for all of them to grow. But the easy growth and headway could end up being much less buoyant and they would have to share their growth with JioMart.
        Nonetheless, there wouldn’t be much of an impact on retail ops category, or even demand generation space, as this isn’t a high volume or large segment as yet. It is fundamentally top-up buying/on demand, at weird hours -- like ordering Doritos or Pringles at 11pm. The volumes aren't super significant, but if the kiranas can sort out on-demand delivery like the Mumbai kirana stores, or dark stores emerge to ride on the Jio platform (like cloud kitchen), then you might see impact here too.
        New startup ideas that could emerge from the success of Jiomart
        • - Delivery as a service: Kirana stores or small businesses that don’t have their own staff can hire staff for delivery. Shadowfax pioneered this, and Dunzo has offered this as an API to smaller businesses. There is scope for hyperlocal delivery as a service model. These kirana stores could make do with folk without bikes as well. They can source these folk by shifts to ensure they keep up with demand peaks.
        • - Dark stores: what cloud kitchens were to Swiggy, these could be to JioMart. Essentially, a small warehouse or storeroom in a residential area that sells on JioMart or online, but not to sell to walk in customers.
        • - A competing set of Shopify-type online retail as a service business helping offline retails sell inventory online via their own or third party platforms. It is unlikely that JioMart would have it all to itself. Google clearly is wondering if it is going to miss out and will try and put together a parallel platform. It already has a significant stake in Dunzo and could try and create a search result and fulfill via the platform.
        • Note: The author Sajith Pai, works with Blume Ventures, an early stage investment fund, in the investment team. Blume has invested in Unacademy, Dunzo, Snapbizz, LoveLocal, which are mentioned in the above article.
          Disclosure: RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.
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