But right now, Jio is facing issues on three fronts. 

First, Jio’s telecom business isn’t doing too well. A couple of weeks back, in its earnings announcement, Jio Platforms declared a quarter-on-quarter fall of 8.5% and 6% in its average revenue per user (ARPU) and overall revenue, respectively. Airtel has been adding more subscribers than Jio every single month since August 2020. 

Today, Jio may technically be #1 in terms of subscribers, but Airtel, which is quite happy to be second, has more active subscribers and a higher ARPU. 

Second, Jio’s retail business isn’t in a great place either. Its e-commerce venture, JioMart, which was launched with much fanfare a year ago in 200 cities, has managed to work with kiranas in just 33 cities as of March this year. Its PoS (Point of Sale) device—the main lever which it planned to use to disrupt kirana stores—isn’t as popular as it should be, and has problems. I could go on about this, but I recommend reading what my colleagues Seetharaman and Pranav wrote yesterday about this. It’s brilliant. 

Third, Jio’s constellation of apps don’t appear to be getting much traction. Remember all the Jio apps which were launched with much fanfare last year? Want to make payments? Use JioMoney. OTT? JioTV. JioCinema. JioChat. JioSecurity. There was even JioMeet—which looked quite familiar. 

Jio launched these apps, but it doesn’t look like any of them (apart from JioSaavn, which was the result of an acquisition) have made their mark yet. In the list of the top free apps on the PlayStore as of this morning, just one of Jio’s apps makes it into the top 50—MyJio, which sneaks in at the 49th position. In a recent presentation to analysts, Jio continued to tout its apps, but didn’t reveal any numbers about their usage or activity. 

Look, I’m not saying that their apps aren’t being used (only Jio knows the real numbers), but I’m saying that if any of them were a runaway success and was displacing other consumer apps, we probably would have heard something about it by now.

All of this has had an impact on the stock price of Jio’s parent company, Reliance Industries. Reliance is down by 18% from its peak in September 2020. For the same time period, the benchmark Sensex index is up by 24%.

One year back, Jio was in the endgame. 

One year later, Jio is still in the endgame...but a victory that once promised to be swift and decisive now looks much more grinding.  

Jio may have racked up billions of dollars, but the reason why it’s stumbling right now, across all its businesses, comes down to one thing. It’s because the final piece that Jio needed in place in order to win and secure its position for years and decades to come is taking longer than anticipated. It’s the piece that Jio planned carefully for. It even brilliantly executed on it. It got the right investors, at the right time, for the right reasons.  

It raised billions and billions of dollars, in part because it needed this crucial, critical, piece. 

And now, that’s exactly where it’s stuck. 

Bizarrely, the reason why it’s stuck has little to do with money. 

In fact, it costs just one dollar. 

Let’s dive in. 

Illustration : Sharath Ravishankar, The Ken

Before we get into what’s going on with Jio today, it’s worth recapping that Jio’s original plan was in the first place. 

If you had to write it down, this is what the 13-step plan looks like: 

1. Launch a telecom company. Offer cheap data and voice plans.
2. Get lots of customers to switch to your telecom network because everyone loves cheap data and voice plans.
3. Get even more customers online for the first time by selling them feature phones which have cheap data and voice plans.
4. Just kidding! Give feature phones away for free.
5. “Ooh, let’s call it the JioPhone”
6. Wait four years until India’s telecom industry crashes, burns, and consolidates.
7. Launch lots of apps for all use-cases in smartphones. Video. Audio. Meeting. Payments. Use Jio in front of everything.
8. Create an app to solve the biggest use-case—retail. Call it JioMart.
9. Make a smartphone.
10. Sell smartphones with your own apps preloaded on the devices to your feature phone customers. Especially JioMart.
11. Customers use your apps on your phones. Some even give you money.
12. If possible, build indigenous network equipment to own the latest cellular technology.
13. Buy a cricket team and win the Indian Premier League (IPL), arguably the world’s most lucrative cricket tournament. 

We’ve written about this before, but essentially, Jio wanted to do something nobody had ever done before. A telecom company decided to go all the way up the consumer stack by building a phone, with its own operating system, to give its users apps that are also owned by the same company. 

(If you want to read more about the consumer tech stack, it’s here)

Illustration : Anushka Chhikara

But this was just half the story. 

After Jio connected itself up the stack, it realised that there was a problem. The users whom it had cornered weren’t necessarily the most valuable users. 

If you are a subscriber to The Ken, none of this would be news, because Rohin wrote about Jio’s telecom woes a couple of weeks ago. In it, he draws attention to several key problems faced with Jio. In fact, he calls it a K-shaped conundrum, because Jio has two types of customers—a large number of low-end customers whom Jio has to retain, and a small number of economically better smartphone customers. His story is a great read to understand all the trade-offs involved if Jio wants to win telecom in India. 

But at its core, here’s the key problem for Jio.

Jio knew this was going to happen. Which is why, right from the beginning, it knew that the JioPhone was a way station along the journey, not the destination. 

To really succeed, Jio needed to make a smartphone. Smartphones are where the money is. Users who use smartphones use data. And make transactions. Or buy subscriptions. None of this is possible in a feature phone. Once someone uses a smartphone, they use apps—some of which may be owned and operated by Jio.

To be doubly sure of succeeding, Jio also decided to make apps which would crush the competition and be widely adopted. In consumer tech, making an app is the easy part. Making an app and getting millions of users to use it was the challenge. One way to ensure wide adoption was to make the phone in which the users discover and install apps. Another way to do it was to partner with the biggest companies in the world, and piggyback on their distribution. 

This is why Jio carefully chose its investors and partners. Most notably, four companies would help it in its mission—Google, Qualcomm, Microsoft, Facebook. 

Jio had expanded vertically by its own accord. Now, with the help of these four companies, it would expand sideways—and acquire more valuable customers.

Then there’s Google and Qualcomm. One which owns the largest and most widely used mobile operating systems in the world, and the other responsible for making chips that power 30% of all phones globally. And both of them are investors in Jio Platforms. 

If Jio needed to make a smartphone, these were the two companies that would help get there. 

But it’s not that easy.

The smartphone cost problem 

Imagine if you had to make a smartphone. That’s a hard problem. 

Now imagine if you had to make a cheap smartphone. That’s harder. 

Finally, imagine if you had to manufacture the cheapest smartphone ever made. And it couldn’t be cheaper than existing smartphones by a bit. It had to be nearly 15-20% cheaper than the cheapest phone in the market. Oh, and you had to do it in the middle of a global pandemic.

Jio is trying to create a smartphone at a cost of under $50, or around Rs 3,500. This is much harder than it looks. But Jio needs to do it because it really has no choice—it needs to migrate its customers to smartphones, and from 2G to faster 4G networks. 

The cheapest smartphones in the market cost around $80. With some efficiency, it can be brought down to maybe $65. Anything below that looks difficult. There’s a great analysis by UBS Global Research about the breakdown of costs of manufacturing a $50 smartphone. Here’s how it goes.

If you want to build a cheap smartphone, you will need to bring down the specs of the hardware. However, you can’t bring it down beyond a certain point because the hardware needs to also support the software, primarily the operating system underneath it.