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The Nutgraf : The Fifth Reason


The Nutgraf

Once again, like every other week, I hope you are well and are safe. It’s a crucial time for us in India. While the curve has started to flatten in most parts of the world, coronavirus cases in India continue to rise, albeit slowly. 

Stay safe. Stay indoors. Take care. 

Let’s dive in.  

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Five reasons why Facebook invested in Jio

Despite the world being focused on Covid-19, big news emerged out of India this week. Facebook invested $5.7 billion into Jio Platforms, the wholly owned subsidiary of Reliance Industries that houses all the digital assets of India’s most valuable company. 

Jio Platforms includes apps, ecosystems, and most importantly, Reliance Jio Infocomm Ltd.—the biggest telecom network in the country, and arguably one of the most powerful companies in the world.

News of the investment broke on Thursday and for the last 48 hours, every casual journalist, newsletter writer, industry expert, blogger, and LinkedIn influencer has been contorting themselves to explain why this deal is a masterstroke that makes perfect sense for Reliance and for Facebook.

The Nutgraf is a newsletter that gives context and makes sense of the events of the previous week, so we had to join in. 

But first, a caveat. Minority stakes are funny things that happen for a broad range of reasons and result in a range of outcomes. We can write a theses about how investments will pan out, why ‘synergies’ lead companies to make certain decisions, but the world is imperfect, dynamic, and inherently unpredictable. Companies change. New facts emerge. Human beings run companies, not product documents. Famously, in 2005, at the height of its powers, Yahoo paid a billion dollars to acquire a 40% stake in a company called Alibaba. Today, Alibaba is one of the most valued companies in the world, and if you are a college student reading this, you are probably wondering what on earth Yahoo is.

So, with great caution, instead of offering one overarching theory as to why this deal makes perfect sense for Reliance and for Facebook, I thought I’d give you five. 

You can pick the one that makes the most sense to you depending on how you view the world.

And like a successful industry expert, I get to hedge my bets regardless of the outcome. 

So here they are. 

Reason 1: Facebook gets commerce. Jio gets distribution

There’s a basic assumption at play here. Facebook in India isn’t Facebook. Or Instagram. It’s WhatsApp. WhatsApp has over 2 billion users across the world, and last year, it confirmed that it had over 400 million users in India, its largest market by some distance. In the last quarter of 2019, WhatsApp was the most downloaded app in the world. All this leads us to believe that WhatsApp is the most popular app in India. Period.

How much money did WhatsApp make in India last year? 


Arundhati, our resident fintech reporter, wrote about WhatsApp’s plan to make money in detail a couple of months back:

Since 2018, WhatsApp has been enabling businesses around the world to reach out to users to notify them about their purchases. In India, online travel agencies such as the MakeMyTrip and its subsidiaries—GoIbibo, RedBus—and online movie booking platform BookMyShow are already using WhatsApp instead of text messages to notify users of their purchases. The volume of messages that shifted to WhatsApp is still in single-digit percentages for these companies.

However, based on recent conversations The Ken had with WhatsApp officials, it is clear that the messaging app will double down on this effort and make it a two-way street—with conversation flowing from both users and businesses. And these conversations will be used to drive full-fledged commerce on the app. 

WhatsApp it to me: Facebook’s push to use chat for commerce

Now, imagine if WhatsApp tapped into a network of not just travel agencies or movie booking platforms, but every single small retailer across the length and breadth of India. 

That’s what Jio brings to the table. Because for the last few months, maybe years, it’s been building a monster that could soon take India by storm. A company called JioMart, a digital commerce platform to take on Amazon and Flipkart. 

Now imagine this combination. WhatsApp finally has a way to make money. And JioMart has an acquisition channel ready and waiting inside 400 million phones before it even launches. 

This is the most popular reason. 

It’s also the most obvious.

Oh, also, it’s what Mukesh Ambani, the CEO of Reliance explicitly stated as the reason in a statement following the investment. 


“The combined power of Jio’s world-class digital connectivity platform and Facebook’s intimate relationship with the Indian people will offer innovative new solutions to each one of you.

In the very near future JioMart – Jio’s digital new commerce platform – and WhatsApp will empower nearly three crore small Indian Kirana shops to digitally transact with every customer in their neighbourhood.”

Mukesh Ambani

If you are Amazon or Flipkart, I wish you lots of luck. 

You’re going to need it. 

Reason 2 : Facebook gets payments. Jio gets a communication app

Back in July 2019, in this newsletter, I wrote the following:

The story of WhatsApp and payments in India is complicated.

  1. WhatsApp used UPI to integrate payments into the app back in 2017. (Incidentally, The Ken was the first to break that story.)
  2. This made some local players unhappy. These were primarily wallet-based, and had to scrounge and fight for users the hard way.  Accusations of favouritism and special treatment were levied.
  3. Then the RBI stopped WhatsApp from expanding further into payments, citing data localisation laws.
  4. Meanwhile, Google, Amazon, and Flipkart jumped on the UPI bandwagon. Together, these companies spent millions acquiring users. All while WhatsApp, with its 400 million users, looked on helplessly. 

Back then, in mid-2019, Will Cathcart, the company’s global head, said that WhatsApp was fully compliant with India’s laws and was going to launch in India by the end of the year

Then in October, Mark Zuckerberg, the CEO of Facebook, said WhatsApp Payments is “going to be able to launch to everyone in India soon”. 

He said nearly exactly the same thing in January this year. 

The new date is now June.

But now, things have changed. 

Maybe, just maybe, with Reliance on its side, WhatsApp has a way out

Both Zuckerberg and Ambani have another common grouse too. Their respective e-payments service, Jio Money and WhatsApp payments, have not taken off in a big way so far. And as Akhil Handa, head of fintech at Bank of Baroda, told Business Insider, “Payments is oil for e-commerce.”

“In my mind, WhatsApp Pay and Jio Money will all hopefully get rolled into one,” Vikram Sud, an independent director at DBS told Business Insider. Together, they will have the muscle to disrupt a crowded payments market both in terms of money and a mammoth data bank to market itself optimally.

To be India’s Alibaba, Mukesh Ambani wants a super app with Facebook⁠— but an all-in-one app is not known to work so far

The advantage for WhatsApp will be that it doesn’t have to conform to these data localisation rules. Just figure out a way to use Jio Money. Boom. Done. 

And Jio? Well, Jio gets something it never had. A reliable communication app. This is huge for Jio because it gives it a path to create products like lending, insurance, etc., all of which require a robust, widespread communication app. Like WhatsApp. 

Some analysts are saying that the use cases are so close that this can potentially create a ‘superapp’—one app that combines payments, messaging, communication, and commerce. Like China’s WeChat. 

This wouldn’t just disrupt the consumer technology industry in India. If done properly, it would be like dropping a nuclear bomb on it. Thousands of startups would get wiped out overnight. Billions of dollars in investments will be at risk. Several unicorns will fall. 

Personally, I am sceptical this is the way forward. 

But it’s possible. 

Reason 3 : Facebook gets data. Jio gets data

This is the simplest reason. But in many ways, it’s also the most complex one. 

Facebook is an ad-tech company. Jio is a telco. And also a media company. 

Ad-tech companies, telcos, and media companies all have their strengths and weaknesses. And are each formidable in their own way. But when an ad-tech company, a telco, and a media company come together, things get very interesting because, in a sense, they cancel out each other’s weaknesses. 

Here’s why. 

Ad-tech companies bring in advertisers and the technology that helps them drive maximum value for these advertisers. Programmatic exchanges. A real-time bidder. Auction strategy. Pricing. Data stores. All they need are good, solid, reliable publishers where they place these ads. 

Media companies offer that. Just look at the unstoppable duo of Google and YouTube. There’s a reason why there isn’t and, unless things radically change, never will be a competitor to YouTube. Google brings advertisers. YouTube brings media, which brings users. Game over.

Telcos add another dimension to this because they give ad-tech companies access to one of the most prized data points—location. If you know a user’s location, you can do lots of things you couldn’t do before. Plus, there’s the small matter that telecom companies in India are struggling to make money, so if there’s a way to monetise, they will probably jump at it. 

This isn’t terribly new. Others have tried this. Last year, InMobi, an Indian company and the world’s largest independent ad-network, announced a partnership with Airtel TV and even spun-off a separate company just to woo telcos

Now, imagine Facebook, one of the most powerful advertising machines in the world, with Jio, India’s largest telecom company, as well as the media content on Jio’s platform.
Especially when Facebook is struggling to monetise in India.

And with Reliance deep in losses and debt. 

Makes perfect sense. 

Reason 4 : Jio gets capital. Facebook gets returns

This is even simpler. 

Forget technology, synergy, advertising, telcos, and superapps. Because this is just cold, hard, financial stuff. 

Maybe the reason why Jio took $6 billion from Facebook was because Jio needed the $6 billion. 

Facebook’s Rs 43,574 crore investment is not a giant deal, considering the money spent to create Reliance Jio, but is an important one at a time when coronavirus has destroyed economies and businesses. Reliance Industries (RIL) has invested nearly Rs 4 lakh crore since 2010 to create the Jio digital ecosystem. However, the deal will help chairman Mukesh Ambani to execute his plan to make RIL a net debt free company.

After the capital gains and income tax, the final realisation from the deal will be roughly Rs 38,000 crore, according to experts. “It will be almost the same as the investment that RIL made to create the asset, without any premium,” a tax expert said.

Facebook-Jio deal: Inside Reliance’s Rs 1.53 lakh crore debt resolution plan

And what does Facebook get? 

An investment into one of the fastest-growing companies in the world, one that has decimated its competitors, both of which are staring at a mountain of losses and debt. All while the telecom industry in India stands at the precipice of a duopoly.

The winds could shift, a gust could blow, and India could find itself in a situation where Facebook gets 10% of a company that operates a virtual duopoly in the second-largest telecom market in the world. 

Is that worth a $6 billion bet? 

For a company that recorded $70 billion in revenue last year? 

Hell yeah. 

Which brings me to…

The fifth reason 

Look, there are several reasons why this deal makes sense. One way to look at it, like how I did above, is to show all the ways this investment helps Facebook and Jio. 

There’s another way to look at it. 

And that’s to not ask what this deal gets, but to step away and ask

What do Facebook and Jio desperately need, but can never get without the other?

Let’s start with Jio. 

Sure, Jio needs capital, an ad-network, a payments app, etc. But it can get all of these even without Facebook. That’s the power of Reliance. It has access to deep coffers and the gargantuan force that enables it to enter advanced, mature markets like e-commerce and telecom against well-entrenched competitors who have been around for decades. 

Reliance gets there late, but when it gets there, it doesn’t just beat its rivals, it obliterates them. 

That’s what it did with telecom. 

That’s what it will probably do with e-commerce.  

How does Reliance do this? Mostly through pricing. It undercuts everyone, and then waits it out, willing to go further than the balance sheets of other companies permit.

That’s why there’s only one thing that Reliance cannot beat. 

It cannot beat something that’s free

It can beat Airtel and Vodafone. It can beat Amazon and Flipkart. It can beat Hotstar and Netflix. But it can never, not with all its might, money, and influence, beat WhatsApp. Because how do you undercut something that’s better and free? It needs something like WhatsApp. It can never create something better.

Then there’s Facebook. 

The story of Facebook in India is as tragic as it’s ambitious. 

Back in 2015, Facebook tried to offer Free Basics in India. It was sold as a way for millions of people who didn’t have internet access to get it. For free. 

The Indian government blocked it. 

Facebook tried to launch payments on WhatsApp. 

India blocked that too. 

Then came cryptocurrency through Libra. Also blocked. 

Facebook owns and operates the most used mobile app in India, making no money off it. While Facebook has been hauled up for privacy violations across the world, it has strenuously and vigorously fought, all the way to the Supreme Court, to protect the privacy of India’s users. It refused to give in to demands to break the encryption on WhatsApp, despite massive pressure from the government. 

During all this, Zuckerberg has patiently, assiduously courted India’s Prime Minister Narendra Modi at multiple events, both in India and in Silicon Valley. 

No foreign company has tried harder to succeed in India. No foreign company has failed more at it. 

Maybe what this deal with Reliance Jio gives Facebook, ironically enough for a social network, is a friend


That’s about it from me.

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