Jio is in the endgame now

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Good Morning Praveen,
It has been a strange week. On one hand, India finds itself with a record number of Covid-19 cases nearly everyday, forcing cities like Bengaluru (where we are headquartered) to lock down again. On the other hand, it was the most consequential week in technology and business in India in the last decade.
There’s no other way to say it: Reliance Jio has changed everything. Possibly for years. Likely decades. Maybe forever. When India was locked down, one company broke free.
There are many, many hot takes about what Jio did on Monday and what it means for the future. All very nice, but I don’t think anybody has fully understood the sheer audacity and extent of Jio’s strategy and what it has attempted to pull off.
That’s what this edition is about—Jio’s audacity and ambition.
Oh, and for fun, I’ve taken the help of two really talented illustrators at The Ken—Sharath and Anushka—to visualise what’s going on.
Let’s dive in.
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The four level consumer tech stack
Say you are the CEO of an electric power company.
Electric power companies provide electricity to homes and offices. They don’t make the power themselves, but they supply it to whoever needs it, and they charge entities based on how much electricity they consume. Quite simple.
Because you are an ambitious CEO, one night you ask yourself—what are my strategic options? My company is in a position of power (heh!), and that allows me to do more things.   Your reasoning would be sound—electricity is an important service! Probably the most important one. Everyone wants it! And you operate in a monopolistic or duopolistic market, which gives you leverage. You may think: I have consolidated my position here, so it makes sense to expand. Maybe you can expand upwards by making switches and light bulbs. And then, who knows?
This is a great plan, but there are perfectly good reasons why electric companies, despite all their obvious advantages of being a monopoly and owning a very valuable part of the chain— electricity—remain...electric companies. Electricity is a utility, and just because you supply electricity, that doesn’t mean that you can magically make light bulbs that perform better than everyone else on your electricity.
Now, raise this by a factor of ten, and you’ll start to understand what it feels like to be a telecom company. Not only do you carry and provide something as valuable as electricity—the internet itself—but you have the privilege of competing with other players, all of whom are responsible for making India the cheapest market for data in the world, while you pay one of the highest prices in the world just to participate in this market.
But why do telecom companies, with all their might and power, mostly remain telecom companies?
To understand this, we’ll have to get into something called the consumer tech stack.
Imagine your phone as a stack, with several layers on top of each other. In its basic, grossly oversimplified version, the tech stack looks like this:
  • At the highest level are the products and the services. These are the apps on your phone, and what you see and use everyday. Netflix for watching movies. PhonePe for making payments. Google Maps. Tinder. That 7-minute workout app which I’ve moved to my last screen so that I don’t have to look at it.  
  • One level below the apps lies the operating system. Typically, you have one of two. iOS for Apple. Or some version of Android from everyone else.
  • Then comes the device. The iPhone. Or the range of devices which all sound the same. Oppo, Vivo, OnePlus, Xiaomi. RealMe. Or if you are a sociopath—a Pixel.
  • Finally, below everything, is the telco itself.
The mobile consumer tech stack has been around in this form for nearly a decade now. Over this time, there are three things what we’ve learned (broadly):
1. The higher you are in the stack, the better
This is pretty evident. Think about the most valuable companies in the world. Facebook, WhatsApp and Instagram. Consumer apps. Google. Search. Maps. Consumer apps. Netflix. Uber. Paytm. OYO. Amazon. Flipkart. All consumer apps.

The reasoning is basically that the higher you are in the stack, the more room you have to move sideways, creating more consumer apps for different use-cases. And because you are the closest to the consumer, you stand a greater chance of making money directly from their wallet (subscriptions) or attention (advertising).
The corollary is also true. Companies lower down the stack are much more substitutable and struggle to differentiate, which essentially becomes a low-margin play. Think of the device OEMs, all of whom look and sound exactly like each other.
2. The more layers you own in the stack, the better
Again, this makes sense. If you are a lowly device manufacturer, you’d really want to have some consumer apps. This is why companies like Xiaomi have their own app store. With a Xiaomi payment app. And a Xiaomi music app. And so on.

The key is that if you are higher in the stack, it makes sense to control the lower layer as well. The theory is that the sum can be greater than the parts, although this isn’t always true.
The consumer tech stack is the prism through which you should view the world. All of these players across the stack work with each other and fight with each other to control you—the consumer. It’s a war that’s both seen and unseen, with territory won and lost, with expansions and retreats, by companies young and old.
Oh, but there’s also a third rule.
3. It sucks to be a telco
Telcos are almost always stuck at the bottom of the stack with little move to manoeuvre. Companies like Facebook (mostly) don’t care if you are using Instagram on Airtel or on Vodafone. And telcos have no way to extract money from consumers. Or a cut from Facebook. They supply data. That’s it. Others make the riches.
Several attempts have been made by telcos to break out of this. From their standpoint, the two layers above are far too intimidating and entrenched, so in most cases, telcos have decided to skip them and jump up to the consumer apps layer directly because...the higher up you are on the stack, the better.
The problem is that, historically, this hasn’t really worked out.
Take Verizon, one of the largest telcos in the world, which harboured ambitions of a consumer app play. Here’s how that panned out.
Verizon's wireless business, which generates most of its revenue, was originally formed as a joint venture with British carrier Vodafone. It became a fully owned subsidiary after Verizon bought out Vodafone's stake for $130 billion in 2014.
Verizon also acquired AOL for $4.4 billion in 2015, and Yahoo's internet assets for $4.5 billion in 2017. It merged those two subsidiaries into a new unit called Oath, which focused on online media and advertising.
Oath flopped, due to intense competition and misfires like the streaming video platform Go90, and Verizon took a $4.6 billion writedown on the unit in late 2018. Last year, it rebranded the downsized unit as Verizon Media and shifted its focus back to its core wireless business.
Is Verizon Stock a Buy, The Motley Fool
Then there’s Airtel in India, which went ahead and backed a consumer app from scratch—Hike Messenger. It did well for a time, and is now struggling, after years of losses. It continues to lose users and money with no end in sight, pushed into irrelevance.
If you are a telco, going up the stack almost never works.
But what about the reverse? If you are above, can you go down?
Well, one company tried. Arguably the most powerful company in the world—Amazon.
In 2014, Amazon went waaaay down the stack, all the way to the device. It launched a Fire OS and even a mobile phone.
In a year, the Fire Phone was dead.
Introduced with grand ambitions last summer, the Fire Phone is widely seen as a fiasco. Originally priced at $199 (with contract) and intended as an iPhone competitor, it now sells for 99 cents, and Amazon has taken a $170 million write-down largely attributable to unsold Fire Phone inventory.
The Inside Story Of Jeff Bezos’s Fire Phone Debacle, Fast Company
This doesn’t mean that this is impossible though. Amazon has tasted early successes with other devices. Like the Fire Stick. And notably, Alexa. But it’s notoriously difficult. This is true for other companies as well. Google may have the stickiest consumer apps in the world, and the most widely used operating system, but its forays on the devices layer haven’t been very successful yet. Facebook, a consumer app, is also making attempts to go down the stack. Even Apple, which created the greatest vertical integration in history all the way from the consumer app side to the device, stopped at the telco layer and decided on partnerships with carriers instead. That’s where its influence ended.  
In summary:
  • There’s never been a successful example of a telco going up the stack.
  • There’s never been a successful example of a consumer app going all the way down the stack.
At least, not until the most powerful company in India led by one of the richest men in the world decided to take a shot.
It decided to start at the bottom, as a telco.
And then went up the stack.
The crazy part isn’t what Jio did, but how it did it.
Back in 2016, I imagine there was a presentation somewhere in Reliance’s offices with the following gameplan:
2016 : Build the biggest telco in India at crippling losses. Kill or kneecap all competitors.
2017 : Build a feature phone using a non-Android OS. Give it away for free.
2018 : Build consumer apps for every use-case. Payments. Chat. Content.
2020 : Profit (?!?)
None of this feels new. Quite frankly, we’ve been talking about Reliance Jio for a while now and it feels like we are now in the endgame. If you want some historical context, I recommend the following (non-mandatory) pre-readings:
  • In October last year we wrote about how Jio became the top telco in India in four short years, and what happened to the telecom market.
  • A month later, India’s decade long bitter, brutal, telecom war finally came to an end and an armistice was declared. In a fashion.
  • A couple of months back, when Facebook announced itself as the first major player to invest in Jio, we gave four reasons why. And a fifth reason.
  • Finally, as investments into Jio became a stampede, we wrote why this was happening. Simply put—TINA.
The main point is that Jio’s major investors were carefully selected, all of whom helped Jio consolidate its position at different levels of the stack. Facebook was selected because it owned consumer apps like WhatsApp and Instagram which Jio could never hope to build. Google was picked because it helps Jio create inroads at the device and the OS layer.
This in itself would be audacious.
But there’s more.
Because Jio went beyond these four layers. To a layer above, and to a layer below.
There’s a reason why I didn’t mention these two layers earlier. Because nobody really goes this far up...or down.
Jio went above to the infrastructure layer, to the part which provides the web services that all consumer apps use—the cloud. And to do this, it partnered with...yes, Microsoft. This is in addition to Google, which has Google Cloud. These two companies control nearly 25% of the cloud market.

Jio also went to the technology layer below the telco, where it decided it wanted to build out the underlying equipment that’ll power and define 5G. I’d link to a story that talks about this in detail, but the only one I could find was my colleague’s Pratap’s fantastic deep-dive into how Reliance is building this out.
Jio isn’t alone in its efforts to make its own 5G equipment. There has been a global movement driven by major operators like Vodafone and AT&T to set specifications and standards in line with operators’ requirements. Based on principles of openness and interoperability, the movement, called O-RAN , seeks to end the hegemony that’s long existed in the telecom equipment space.
Traditionally, the 3rd Generation Partnership Project (3GPP), which is led by large vendors like Ericsson, Nokia, Qualcomm, Huawei, ZTE, and Samsung has set standards, with operators forced to follow.
Reliance Jio's 5G push to be India's answer to Huawei, The Ken
Who is the other investor in Jio?
Yup. Qualcomm.
The vertical stack is now complete. And it results in a landscape that looks something like this.
Just look at Jio’s sphere of influence and you finally figure out the magnitude of what Jio has really done.
Remember the electric company example earlier? Imagine if that electric company not just built out the light switches and the lamps, but also defined the industry standard plug points, manufactured refrigerators AND the milk and eggs that’s in the refrigerator. Then, still not content, it went up to partner with the biggest agricultural cold chain and went down to manufacture the technology of electrical equipment which would become the global standard for all electric companies in the world.
That’s more or less what Jio has done.
Oh, and meanwhile, just for fun, on the side, Jio has decided to take on Amazon and Flipkart.
It remains to be seen how this will pan out. Jio doesn’t exactly own everything in the stack, but it has the next best thing—investments from everyone who matters in this stack. But for the next few years, maybe decades, Jio has changed everything. It has created a wall around an empire that stretches all the way from the top to the bottom of the stack, effectively ensuring that you need to pay a hefty tribute if you want to access these users. If you are in the consumer business and were hoping for scale and app distribution to figure out a business model - like payments, or OTT, or ed-tech; or if you are a smartphone manufacturer...I wish you lots of luck. You are going to need it.  
Oh, and if all this isn’t enough, Mukesh Ambani, the CEO of Reliance even has a cricket team.
We are truly in the endgame.
Write back. Let us know what you think.
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All credit to Sharath Ravishankar and Anushka Chhikara for the lovely illustrations.
Take care. Stay safe.
Praveen Gopal Krishnan
The Nutgraf is a paid weekly emailer that explains fundamental shifts in business, technology and finance that happened over the last seven days in India. In a way you’ll never forget.
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