Print Friendly, PDF & Email

Insights into Editorial: A big deal

Data_behem

 

Context:

Reliance Industries and Facebook announced that the California-based social media giant will acquire a 9.99 per cent stake in Jio Platforms limited, the holding company of Reliance Jio, for $5.7 billion (Rs 43,574 crore).

The coming together of two giant companies like Facebook and Reliance is completely going to change the internet ecosystem in India forever.

India is the single-largest market with about 330 million monthly users, and also one of the fastest-growing markets for Facebook. WhatsApp’s messaging app also has the largest user base in India, with about 400 million users.

Why bought of a 9.9% stake: Foreign Portfolio Investment:

Foreign portfolio investment (FPI) refers to investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange for less than 10% of the total value.

This type of investment is at times viewed less favourably than direct investment because portfolio investments can be sold off quickly and are at times seen as short-term attempts to make money, rather than a long-term investment in the economy.

Portfolio investment typically has a shorter time frame for investment return than direct investment. As with any equity investment, foreign portfolio investors usually expect to quickly realize a profit on their investments.

Providing seamless online transaction experience:

At its core, the idea is to create an ecosystem around JioMart, enabling customers to access the local kirana stores using WhatsApp, combining both offline and online retail.

This ability to connect millions of local businesses with end consumers, and provide them a seamless online transaction experience could radically alter the country’s retail landscape.

Both firms have stressed on the new opportunities for businesses of all sizes, and especially for the millions of small businesses across the country.

With the ongoing lockdown in the country only reaffirming the importance of the local kirana store — major online delivery channels have struggled to reach consumers during this period — integration is bound to be an enticing proposition.

Deal Provide opportunities for cross selling:

  1. A scaling up of this model will also provide opportunities for cross-selling — significantly increasing the upside for firms and increasing the valuation of its retail arms.
  2. At present, though, the reach of WhatsApp Pay is limited — just over a million Indians are reported to currently have access to the pay feature.
  3. But this sort of model is popular in other Asian economies such as China, Korea and Japan where apps like WeChat have a wide range of product offerings, which induces consumer stickiness.
  4. This arrangement also allows Jio to greatly expand its product offering to its more than 370 million-odd subscriber base.
  5. The deal may also open up the entire WhatsApp consumer base — the near ubiquitous chatting app has a consumer base of around 400 million — to Reliance, including those on other telecom platforms such as Airtel and Vodafone.

Future technological plays will be more near:

This strategic partnership with India’s one of the largest telecom operators will be key to India’s future technological plays, particularly in virtual reality (VR) and Internet of Things (IoT), and 5G network.

India’s internet framework may get a technological boost, and that too reaching citizens in a short time.

This deal may help in deepening financial inclusion as 400 million users of WhatsApp, may leverage Facebook’s Whatsapp pay-UPI platform.

Also, because of Facebook’s Libra cryptocurrency service, this deal could be a step further for experimenting crypto-based payments and blockchain technology on a large scale in India.

Yet there are concerns regarding this arrangement:

  1. For one, given the dominant market position of the players, concerns over the market structure and its implications for consumer welfare are bound to arise.
  2. Second, the tie-up also raises questions on net neutrality with the possibility of preferential treatment being granted.
  3. Facebook’s Free Basics platform was shut down by the Telecom Regulatory Authority of India (TRAI) due to net neutrality concerns.
  4. In 2015, it experimented with Free Basics, which provided free access to basic Internet services as a partnership with service providers.
  5. Also, violation of principles of net neutrality is difficult to prove, owing to technical issues like low bandwidth, the difference in network capacity in different areas.
  6. Third, given the data privacy issues highlighted in the past by the Cambridge Analytica episode, for instance, there are apprehensions over the enormous amounts of data that will be collected by these entities, especially when India still does not have a personal data protection law.
  7. Data is also referred to by many experts as the new oil or new currency of the 21st century.
  8. This is due to the fact that the vast quantities of data generated by users of online services can be processed into valuable information for commercial and strategic gains by technological giants like Amazon, Google etc.

Conclusion:

The deal, it said, will allow both Facebook and Jio to monetise their digital platforms, engage customers online, and provide direct connectivity between users and merchants.

Usage of digital platforms is likely to grow significantly in the medium term amid severe disruptions caused by lockdowns and social distancing measures.

This mega-deal will have major implications on India’s retail and internet landscape.

However, in the context, the role of regulatory bodies such as the Competition Commission of India and Telecom Regulatory Authority of India assumes much importance.

The nature of such regulation will decide the overall fate of India’s market, whether it will turn into digital Sarvodaya or will deepen the digital divide.