Zuck’s making friends: Facebook’s $5.7B investment in India’s Jio, explained

This article was originally written by Dhiraj Narula on Cafe Economica on 24 April 2020.

While much of the financial world keeps its eyes fixated on China’s movements, billionaires Mark Zuckerberg and Mukesh Ambani – once again Asia’s richest man – have made leaps and bounds towards conquering an untapped, half-a-billion-strong market just next door. As Facebook’s largest single investment ever, the deal will likely have resounding effects both within the world’s largest democracy and beyond. 

The Deal

On Tuesday, 21 April, Facebook CEO Mark Zuckerberg surprised markets in the wake of a global recession by announcing a $5.7 billion investment into Indian telecom company Jio Platforms. Jio is a subsidiary of Reliance Industries – an Indian conglomerate owned by the country’s richest man, Mukesh Ambani. 

The investment, Facebook’s largest non-acquisition transaction and second-largest overall (after it’s $19 billion acquisition of WhatsApp in 2014), gives the social-media giant a 9.99% stake in Jio – valuing the company at over $57 billion. 

Following the announcement, both Facebook (FB) and Reliance (RELIANCE) saw a surge in share prices, with the latter’s 10% rise increasing Ambani’s net worth by almost $5 billion, dethroning Jack Ma as Asia’s richest. 

Jio – A brief history

In 2010, Reliance Industries acquired a small internet service provider known as Infotel Broadband Services Limited (ISBL) – Mukesh Ambani’s first venture into the telecommunications sector after a fallout with his brother, Anil, who took over their late father’s mobile network business in 2005. 

Three years later, ISBL was rebranded as Jio Platforms, and in the years that followed, Ambani spent over $33 billion on the infrastructure necessary for nationwide 4G connectivity. Reliance then leveraged their financial muscle to offer some of the lowest mobile data rates in the world, as well as free domestic calling to acquire market share. These moves resulted in hundreds of millions of consumers switching to Jio from its competitors – driving Anil Ambani out of the market – and provided connectivity to millions more who previously didn’t have internet or telephone access.

Now, Jio Platforms has begun projects in financial technology, education, healthcare, and is aggressively attempting to launch JioMart – an e-commerce platform to challenge the likes of Amazon and Walmart. But these efforts have been largely in vain thus far.

This is where Facebook comes in.

Photo by ROBIN WORRALL on Unsplash

Facebook’s complicated past with India

As the second-most populous country in the world – and the largest that hasn’t officially banned domestic Facebook access – India boasts the largest user-base of Facebook’s services in the world. Over 400 million Indians use WhatsApp and more than 300 million use Facebook’s core platform. 

But despite the massive potential for a large revenue stream and growth from India, Facebook has thus far failed to successfully monetise this market – per user revenues in India are among their lowest globally.  

In 2016, Facebook attempted to launch their ‘free internet’ program, Free Basics, in India but faced scrutiny for violating net neutrality by only allowing users to access certain websites, and was subsequently banned by the Indian government. More recently, the government has reprimanded WhatsApp’s encryption policies and blocked their attempts at introducing a WhatsApp-based payment service for Indian users – hundreds of millions of whom use the app for business purposes. 

Because of this, Facebook has trodden very carefully in its attempts to have a breakthrough in the Indian market. 

But by working with Jio, a company that holds the favour of the Indian government for its efforts to develop India’s telecommunications infrastructure, these struggles may cease. 

Mutual Benefit

Jio’s newfound ability to harness WhatsApp and Facebook’s existing user base to expand their operations and gain e-commerce market share, coupled with Facebook’s ability to finally tap into India’s vast market and be the first US tech giants to reach the 500+ million Indians who still remain offline, make the deal an incredibly sensible one for both parties involved.

With the ever-growing importance of online platforms in society due to the coronavirus pandemic and the US’s increasingly turbulent relations with the other superpopulated emerging market, China, the timing of this deal seems impeccable as well.

What this means for the future

The Facebook-Jio investment marks the beginning of even bigger things to come. 

In his announcement, Mark Zuckerberg stated that “India has more than 60 million small businesses”, who need “digital tools they can rely on to find and communicate with customers and grow their businesses”. Because of this, Facebook is “partnering with Jio to help people and businesses in India create new opportunities.” 

Indeed, the room for growth and development in India is highly promising, and Facebook will be more than happy to have a stake in its rise. 

However, despite these benefits, the specific economic outcomes on markets must be considered. 

In other Asian countries, dominant media platforms have established ‘digital universes’ – such as WeChat in China and Grab and Gojek in Southeast Asia – where a suite of digital services are offered in a single application or under a single brand name. Jio and Facebook have both been actively expanding into new sectors in recent years, including healthcare, fintech, education, and employment services, making such a ‘universe’ a likely outcome in one form or another. This has large upsides from a consumer convenience standpoint, but the threat of monopoly power certainly looms large.

Jio’s prices may remain low for now, but as seen by Grab in Singapore, the emergence of a dominant market player can lead to the competition being driven out and excessively high pricing being imposed in the long run. In India, Jio’s rival Vodafone hangs on the edge of insolvency, making this possibility very real. 

Finally, as with all major developments in the technology sphere, the implications on data privacy and cybersecurity must be scrutinised as well. In 2018, Ambani famously claimed that “data is the new wealth” and “India’s data must be controlled and owned by Indian people and not by corporates, especially global corporations.” 

It seems ironic then, that Ambani not only partners up with a global corporation in his most data-driven business, but the one corporation that has faced no shortage of data privacy scandals in recent years.

Indian competition and cybersecurity authorities must therefore remain vigilant. As their recent activities have shown, even before the dust settles on the coronavirus pandemic, Facebook and Jio Platforms are ready to go.