Facebook’s recent $5.7 billion investment in Indian telecommunications behemoth Jio Platforms goes beyond the typical tech deal and will help the American social media titan finally unlock the world's biggest democracy.
On the surface, it's an e-commerce deal that aims to deliver incremental benefits such as better choice, faster deliveries and lower prices to entice consumers to buy more. But at a deeper level, the core of the Facebook-Jio alliance is about accelerating India's digital vision to change the lives of all Indians for the better, according to the companies.
Their ultimate purpose is to uplift the lives of all Indians to live better lives and plan to better access to education, healthcare and the ability to transact digitally when it comes to daily needs, with a particular focus on rural populations and micro, small and medium enterprises. And this can happen through services like Whatsapp Pay, which has struggled to take off on time, and the growing JioMart.
“What is most exciting is the size and scale at which the alliance can drive progress for a consumer class that has been largely ignored and massively underserved in so many ways for generations,” observes Jehan Leanage, executive director of business transformation for Asia Pacific at R/GA.
“Put in context, India’s 66% rural population means they have 890 million people underserved, which this partnership is trying to address. When you view this opportunity through this lens, you start to get a sense of how this might translate into an attractive growth opportunity for Facebook.”
Facebook has always been clear about its long term plans to acquire its next billion users. They have launched initiatives like Facebook Aquila and internet.org to provide Internet access to remote areas, but both fell short.
Even with 630 million users, India's mobile penetration rate is currently at about 30%. And with data costs falling by 95% since 2013, rates are expected to rise to 750-800 million users by 2023.
As Facebook gears up to connect the next billion people, they expect 70% to come from Asia and nearly 337m from India alone, which clearly shows why it is such a strategic market for the social networking giant.
Led by Mukesh Ambani, the richest man in Asia, Jio has played and continues to play a role in driving mobile penetration rates in India. It is by far the largest player in the market with a huge customer database and dominance in related consumer spaces such as retail, entertainment, and even social.
As Ambani is a big believer in technology as a driver of human development and that anything that can go digital will go digital, Jio will play a pivotal role in helping Facebook's reach its ambition.
“Facebook has been seeking opportunities to monetise WhatsApp since acquiring it in 2014. The platform that now has over 1.5bn users worldwide announced a controversial plan to incorporate ads into the app in 2014. However, earlier this January, WhatsApp management decided to back away from plans to move this forward,” explains Leanage.
“In their relentless pursuits, they have found a better pathway to monetisation. WhatsApp Business, which enables enterprises of all sizes to connect with and sell to consumers, through a paid service, which gives them access to customer engagement, relationship management and sales tools.”
He adds: “Last year, Facebook announced that they had successfully launched the service and had acquired 5m active business users. This number is dwarfed in comparison to Ambani's plan to introduce 30m small grocery stores to its e-commerce platform JioMart in the short-medium term. As Facebook looks to scale its WhatsApp Business platform globally, the size of the opportunity the Indian market represents is staggering.”
Ultimately, for Facebook, all initiatives ultimately need to collect valuable consumer data that it needs to power their advertising engine, which generates 98% of its revenue.
Leanage says it is a given that Facebook knows a lot about a person. However extensive their data set may be, it could not tell that person about their purchasing patterns. Facebook has desperately tried to fill this gap with services like Instagram Shop or other shopping features, though they have not reached a level of scale that is needed to be attractive to advertisers.
“This partnership for the first time enables Facebook to feed their Knowledge Graph with the 'holy grail' of marketing data, purchasing habits and well payments, and with the ability to execute at a scale that they have never done before,” he explains.
“This level of data collection could be a potential game-changer for the social networking company. It will make the platform so much more desirable in the eyes of marketers who will no doubt pay a premium to access that information.”
How Facebook-Jio will take on Amazon and Walmart
For the longest time, Indian e-commerce has largely been dominated by Amazon and Walmart-backed Flipkart, which controls just over 62% of the market split almost evenly. Now, the Facebook-Jio partnership introduces a formidable third force into the mix.
In the long run, this alliance will counter the growth of Amazon and Flipkart, but it could completely disrupt the way e-commerce is run in the world's largest democracy.
Enabling rural Indian commerce means both Jio and Facebook will have unparalleled insights into purchasing habits, needs and challenges of an entirely new consumer class the world of e-commerce has known least about until now.
Facebook currently has 400m WhatsApp users in India and JioMart has 388m customers of its own. However, Facebook’s plans for WhatsApp Pay has been in development for over two years, as reports suggested that issues that led to delay were tied to compliance and data processing regulations that prevented a move beyond the initial experimental phase.
It was only in February 2020 that Facebook had been given permission to pilot with up to 10m users. Approval for the rollout of the service has been set for end-May in partnership with three banks, Axis Bank, HDFC Bank and ICICI Bank. It was also reported that the State Bank of India would join at a later stage.
As Jio plays a key part in accelerating India's digital vision, Indian regulators are more likely to view any collaborations they enter into that drive the national vision forward positively.
That means through JioMart, Facebook is likely to get access to India’s massively unregulated and informal retail segment as India has over 30 million ‘Kirana’ (neighbourhood) stores and JioMart, in partnership with Whatsapp, could help digitize these neighbourhood stores by providing them with a digital storefront as well as a mechanism to collect digital payments via WhatsApp Pay.
It would give millions of small business owners a chance to enter the formal economy and modernize their businesses and compete against large, foreign e-commerce behemoths like Amazon and Walmart, a narrative that is likely to sit well with the local and national politicians.
“The partnership would give JioMart a customer acquisition and communication channel through Whatsapp’s 400m users and allow WhatsApp to finally legitimize and monetize its payment product in India, after the false start it had a couple of years ago, says Prantik Mazumdar, the managing partner at Dentsu Aegis Network’s Happy Marketer.
“The joint play is a perfect avenue for Ambani to realize his ambition of becoming 'India’s Jack Ma' if he is able to leverage this relationship to potentially create a super app and become India’s Alibaba and monetize the billions that he has bankrolled to setup Jio’s telecom infrastructure and acquire customers through low-cost data plans.”
Leanage agrees, noting that Jio’s proposed strategy and model seems quite similar to Alibaba in China, where they, on one hand, play an enabler role to grow small businesses and on the other enable all consumers (rural and urban) consumers to transact digitally.
He says the biggest threat the incumbents face is the lack of control it has when it comes to influencing a customer’s pre-purchase journey. In contrast, the alliance has a massive edge when it comes to data, which they can use to influence and control a consumer’s purchasing journey, long before a need to purchase has even begun. And they will use this to lure customers away from the incumbents.
“The alliance also has an edge when it comes to integrating online and offline commerce onto a connected ecosystem. This would essentially allow customers to shop across channels but still be within the ecosystem, so receive one consistent experience. This leads to a level of lock-in that will make it hard for the incumbents to compete against,” he adds.
“The partnership has the potential to create massive problems for incumbent players in India unless they find a way to respond to and counter threats. Which could mean they need to rethink and reevaluate their business model.”
A bigger walled garden?
Dr. Kushal Sanghvi, the India lead at Integral Ad Science argues that the overall Facebook-Jio deal is all about combining forces of their data and creating interesting models for advertisers and also creating a new offering for the media planners in the duopoly market that they most often buy into.
Facebook and Jio will together also have access to vast troves of personal information, even as India is yet to finalise a personal data protection law.
“News reports already point to Jio's plans of creating a super-app along with Facebook, which could also result in the creation of an ecosystem of apps and more advertising opportunities too,” he explains.
“There may be many more benefits on data transfer, which may impact innovation, and therefore, sufficient regulatory scrutiny will be needed to ensure that the conditions are made available to other third parties.”
Poran Malani, the director of S4 Capital in India thinks this will be a two-way street as Jio has a huge amount of data but Facebook knows how consumers behave. He feels having access to the analysis of behaviour will help grow and model the untapped markets.
“The telecom rivalry in India is supplemented by a larger rivalry of big tech companies like Amazon, Facebook, and Google also trying to establish a lead in tapping the biggest open market for Internet users,” he explains.
“While the B2C market of advertising directly to users has its limitations, both in terms of the business that can be tracked and the personal information of users that can be shared, a B2B approach through small and medium businesses will give tech companies access to hyperlocal behavioural patterns across the country.”
He continues: “Google has an existing investment in hyperlocal delivery startup Dunzo. Its attempt at mapping hyperlocal activity through Neighbourly didn’t quite take off with the app shutting shop last month.”
The most important benefit of Facebook’s walled garden of data is going to come from the ban on cookies by major browsers as Jio will not be as able to track customers through their digital properties, points out Kunal Bhatia, the regional delivery director and head of product at Publicis Sapient.
“However, Facebook and Facebook ads can support and provide some data. Jio is doing really well in the current Covid-19 scenario, access to further data and ad capabilities will help to boost its reach, and will provide Facebook with further data to support its growth,” he explains.
If this symbiotic partnership fuelling commerce, communication, and payment take off, this could create a massive data play for both entities and one that could be synergized and monetized collectively, suggests Mazumdar.
“Facebook would continue to collect massive sets of data around user demography, content consumption, purchase intent, transaction data and purchasing power,” he explains.
“This, coupled with location data from Jio, could become a powerful data play for both parties to monetize via ad tech within Facebook’s walled garden and allow Facebook to rapidly scale up its ad revenues in India from the current base of approximately US$290m, about a third of Google’s ad revenues in the country.”
The battle for everyone as the world comes out of the Covid-19 crisis will not be about size alone, but will be about relevance, and interpreting the knowledge that best meets the needs of the consumers and brands.
Facebook and Jio will have to seamlessly integrate to make their alliance work, as it is not a merger, but one company taking a stake in the other. Amazon, Google and Walmart will have to fight the same battle of relevance and understanding if they want to compete.
That said, the large war chest, market access and the political clout that the Facebook-Jio partnership brings to the table will be a massive big wake up call for Amazon, Google and Walmart as they will also need to dig deep into their reserves and find suitable allies if they want to fight the Facebook-Jio alliance.