Impact of Reliance Jio+Facebook on Indian Businesses, Startups, and Economy





Big news these days is that Facebook has invested USD 5.7 billion in the Reliance Jio industry for a 9.99% equity stake. That impact is going to be huge in terms of the startup economy on Indian businesses. Here are some views from the industry experts on this. They have also provided enough insight on how young entrepreneurs should be looking at the Indian economy and its future.

Vikram Chachra, a founding partner of 8i Ventures, says that this is a win-win for Facebook as well as Reliance Jio. It is essential to understand what is tactical for both sides. 

He further states that-
  • Reliance has done a tremendous job by emerging as the largest offline retailer in the country. 
  • The most friction-less emerging platform is WhatsApp Pay, which is far superior in terms of user experience compared to Google Pay or PayTM. 
  • Reliance’s ambitions to digitize the general stores have not yet flourished. Hence, the retailers will be able to use WhatsApp Pay as a digital platform and WhatsApp’s small business account as a Customer Relationship Management (CRM) account.

He also thinks that this is a serious threat to PayTM and Google Pay because WhatsApp is the CRM of everyone’s lives. In the current lock-down environment, many of us are communicating with the nearest stores via WhatsApp. The only missing thing is the payment link. Those of us who have started using WhatsApp Pay know that it has 10x better experience than paying through PayTM or Google Pay. Once WhatsApp Pay becomes accessible to all, the massive adoption that WhatsApp payment will receive is going to cause a problem to its competitors.

Pranav Pai, a managing partner at 3one4 Capital, thinks that this is a welcome move. India is now among the top 5 economies in the world after the USA and China. 

He further commented that-
  • When Jio was launched, it stated that it wants to unify the country and build a one-stop platform for consumers and small businesses and enterprises. 
  • Over the last three years, it has formed alliances with the SBI, Microsoft, and Facebook. It plugs all of these modules together into something that brings the entire country on a single platform. 
  • India is going to be the next big battleground as all of us have learned over the last 5 years. We have seen Walmart buy Flipkart, Amazon tying up with Future Group and will be tying with Kotak very soon.
  • Google is a large player with its payments app among the top 3. Hence, WhatsApp Pay is a welcome move for the whole country.
  • The biggest problem in retails in India is that we have a unique payment trap for small business owners. A small or a medium-sized retail outlet is always on a working capital cycle and in debt with the distributor or the producer. This is a bizarre system in India. Unilever in India is among the few companies in the world to claim a negative working capital cycle. This means that it has paid ahead of time for the actual sale.
Pranav also says that if Jio suddenly owns 50 million small businesses and 10 million of them enter into retailing at the front end, all procurement for those stores will happen through Reliance retail procurement terminal. The massive potential that Reliance will have in negotiating with large producers like Unilever will suddenly become biased toward small business owners. Thus, we will see a sudden fall in margins for the producers. On the procurement side, Reliance will be a massive boon to small business owners, especially when it comes to procurement from large business owners.

According to Bharat Banka, a founder of private equity and an angel investor, this is the mother of all transactions that have happened in the country. The tie-up between Facebook and Reliance is like a digital supermarket. 

On this, his views were-
  • If you were to go to a normal commodity supermarket today, you would get various commodities and products. 
  • Until a few years back, we had retail internet and telecom but with this tie-up, we have retail financial services also. Today, when we log in, there are two options - login through Google or log in through Jio. This will help in accessing a larger number of services and products.
  • Bharat also throws some light on new opportunities for startups and things that startups should be afraid of. 
He further says that-
  • It raises interesting questions that will pan out depending on how the behavior of these two dominant players is coming together. 
  • We know that Facebook is dominant in social media networking. Reliance needs no introduction to what it has done in the telecom sector by investing tons of dollars, thereby making it a well-recognized dominant player. 
  • When these two come together, it is a clear regulatory blessing. A lot of platforms like Facebook that come in India and operate; it is wiser for them to work with someone more articulate in India like Reliance other than trying to do it by themselves. 
  • If we compare this to something like Walmart-Flipkart, it is a dough off. This actually describes the size of the impact. In that context, what startups need to do actually depends on the behavior. 
  • One behavior could be like Google that operates globally and has collaborations with numerous startups, which come up with many innovative products, services, and technologies. Google is happy to help them. Eventually, it becomes something like a monopolistic kind of a scenario. 

Paula Mariwala, founder and president of Stanford Angels, thinks that this is momentous for two big platforms tying up. When we are looking at digital transformation in India, it is really going to accelerate what India is set to do.

She thinks that-
  • We will have a great experience for consumers and SMEs and are really looking to get a fragmented system of the eco supply chain in India. 
  • SMEs which find it hard with technology will be benefited. Whenever there is a business plan which looks at SME as a primary consumer, several companies fail. This is going to be a game-changer for that.
  • When two big companies come together, there is some fear. But, there are a lot of complimentary opportunities also for startups.
  • One can now hope that more big companies will come to India, which will accelerate innovations. Of course, there is a threat that they will want to do everything by themselves. 

She believes that across sectors, SMEs will start getting onto these kinds of platforms. Consumers will get more adapted to using these services. It will even get people on board who are unhappy to pay online. But we have to keep our eyes open for monopoly, internet quality, and data privacy.

Vinod Keni, an early-stage investor in Artha, says that this is a bright spot among all the doom and gloom. 

His views are-
  • There are multiple facets to this. First, there is a strong vote of confidence and secondly, there are several such initiatives in countries like China. 
  • Hence, this is the first step of a lot of startups entering India. Next, it favours India becoming a lucrative market. It will help startups to accelerate technology and adopt unified services for small & medium enterprises.
  • This is also great news from an investment perspective. For companies that can continue to scale and build sustainable businesses, investors are still out there. That is a big vote of confidence.

He is excited about this collaboration as it opens opportunities for a lot of other platforms.

His further thoughts were-
  • These companies will start trying to make sure that the adoption level of their services and whatever they want to offer to consumers as well as businesses is accelerated. 
  • This means that there are opportunities for entrepreneurs to build businesses and for investors to start looking at these opportunities. 
  • This will enable the investors to form partnerships with Reliance and Facebook as a key partner because that will help build product services for India and could also potentially benefit other industries.

Ninad Karpe, a partner at 100X.VC, says that this is a marriage made in heaven. The timing could not have been more perfect. 

He stated further that-
  • Unfortunately, we are going through very troubling times but this has led to relooking at a lot of things. 
  • Small businesses have never embraced technology wholeheartedly. They now have the option of doing their business fast, from delivery to payments and record keeping. 
  • There is a lot of impact on various industries including education. It will lead to a ripple effect in the economy. 
Questions from Viewers: 

Q1. Do you think Reliance aims at being in every house across India with JioMart, JioFiber, JioGate, etc. Where do you see this going?

Bill Gates basically described a platform as something that generates much more value for the outside world than it does for itself. Neither Facebook nor Reliance has a track record of building such friendly APIs. It just depends whether they want to keep the pie to themselves or are open to completely platforming themselves with the true technology. If they are open, it's not going to be only Jio that proliferates across every home. While it will create amazing opportunities for small businesses, it will be largely monopolistic in nature. It is very likely to see more and more of these products in the future.

Q2. Definitely manipulative to win the market share at this moment, Reliance is big-time into data and IT infrastructure by looking at the last announcement with Microsoft. What is your view regarding if Google will join this party in terms of investing in India?

Google has followed a slightly different strategy. It has been partnering with the government and investing in highly consumable products. But this is a game-changer scenario. It will probably hassle its process of reflecting on what’s next.

Q3. Jio is a b2b b2c player and wants to own the demand and supply side to compete with big shot companies like Amazon and Metro Walmart. Why will the retailer trust this option as he could just walk away with the consumers?

Indians are extremely generous with their time. They spend hours online but are not yet trusting their money online. So, the absolute value of transactions online has not reached its full potential. There are two constraints - lack of interest and perspective of price. So, the retail sector will give most Indians the ability to trust any platform they are performing transactions.

- 100X.VC Team

Published on: April 23, 2020