The Facebook-Reliance tango is great for both companies, but is it good for India?

The coming together of these two giants has important ramifications for how India will consume physical goods and data.

A few weeks ago, as COVID-19 wreaked havoc across the world, Facebook put down $5.7 billion for an almost 10% stake in Reliance's Jio Platform -- a company that has so many arms that you're surprised when they're not involved in something.

The most important of Reliance's arms is Jio, the telecom company, which began operations in 2016 when Reliance chairman Mukesh Ambani leveraged his oil and gas business to scrape together over $30 billion in debt to jumpstart the company. So far, it's been a brilliant bet.

The Facebook-Reliance deal has set off a whole tsunami of speculation on what this pact is really about and whom it will benefit. Many have lauded Facebook for inking what they believe is a pretty savvy deal by getting access, through Reliance Jio's consumers, to what is going to be a humongous market in India that a predator like Jio will most likely dominate. After all, when Ambani waded into what was a vibrant Indian telecom industry that fielded eleven players of various stripes and sizes, he demolished it almost overnight with his scheme of free voice and data. 

Today, only three of those players remain: Jio, Airtel, and Vodafone. And Airtel and Vodafone are currently drowning in ₹40,000 crores of debt each. If there was anyone that Facebook -- a company not exactly known for its concern for humanity -- would want to ally itself with, it would be Reliance.

FACEBOOK'S INTENTIONS

Setting aside comparisons to a Sith Lord teaming up with Thanos, there are many angles to this deal that Facebook could capitalise on. On the surface, it is quite logical for Facebook to see the deal as a way to gain market share in the hinterland as Reliance Jio will most definitely grab a big portion of the 700 million Indians who are yet to own a smartphone. This is in addition to the 370 million customers that Reliance Jio has already accrued. 

Where Jio goes roaming, Facebook will now be able to tag along. Having missed out on China in both the social media and online payments space, Zuckerburg cannot afford to let another humongous fish get away. Moreover, Facebook already has the largest Indian user base in the world at 324 million. Its messaging service WhatsApp is supremely dominant in India with 400 million customers

Riding on the coattails of Reliance by flogging ads to and sucking data from India's masses must have been a lip-smacking possibility. Indian customers are supposedly not making Facebook much money, and it will be a while before the hinterland comes onboard and opens wallets. However, that is destined to change in 10 to 20 years, so consider this a long game for the social network.

Another piece of speculation that has made the rounds is that Facebook wants an Indian partner to help get its payments arm WhatsApp Pay up and running. The payment service has been in beta since last year, with Facebook quietly waiting for the green light to launch. 

The Indian government, however, hasn't exactly rushed to give Whatsapp Pay the thumbs up, especially considering Facebook has refused to adopt data localisation rules and stuck to its stance on end-to-end encryption. 

Zuckerburg must have been squirming in agony as online payments have become one of the most exciting segments in the world, and it is red hot in India with players like PayTM, Google Pay, and Flipkart's Phone Pe already well-entrenched and doing roaring business. 

Think about the sector's potential in this way: China's Alibaba is worth $431 billion. Alipay, originally started by Alibaba to help its customers conduct financial transactions in 2004 -- which now also provides its customers with investments, insurance, and more -- is now privately valued at $200 billion and could eventually be listed for a market cap that outstrips its parent company. Sitting on the sidelines of a sizzling online payments space in India would be an unmitigated disaster for Zuckerburg.

And knowing that Ambani and India's Prime Minister Narendra Modi are both from the state of Gujarat and are chums, you can bet your bottom rupee that Zuckerberg knew this deal would help move things along. In fact, by some miracle, just before the deal was announced, WhatsApp Pay got the go-ahead to launch.

However, what must have been sheer delight has since been blunted, according to yesterday's reports that the approval has been held up all over again, this time, by the Supreme Court because of a case filed against WhatsApp over all of the same thorny issues. 

Still, approval or not, Reliance will be an invaluable ally in the years to come. After all, Facebook's reputation took a good beating nationwide a few years ago thanks to its Free Basics Plan that India banned for violating net neutrality. Plus, some have speculated that Reliance could be the vehicle for Facebook's eventual e-commerce aspirations.

Okay, so far so good for Facebook. But what, pray, is Reliance getting out of this?

RELIANCE'S SPRAWL

Reliance is one of India's largest oil and petroleum companies that has built the country's largest refinery in the state of Gujarat. Its origins lay in the textile business, an industry it still dominates. It is also India's largest retailer with too many businesses to count, from electronics to groceries to kitchens, and many, many more. 

Then there's also the massive Jio bet. And to complement his telecom outfit, Ambani has also picked up stakes in TV news stations and digital news (CNBC TV18, CNN-IBN, CNN Awaz, Money Control, Forbes India, India Today); the entertainment business (Viacom 18, Balaji Telefilms, as well as various films and television serials); Eros (a huge repository of old and new Indian films online); and Saavn (India's Spotify) -- all to feed Jio TV and Jio Movies. He has also built Jio GigaFiber, a fibre-to-home business that is currently working to roll out 4K bandwidth.

The speculation amongst many is that these moves made by Reliance, much like those made by Alibaba and Tencent, are aimed at creating a SuperApp along the lines of WeChat in China, where a user can start the morning with the App by reading a newspaper, message a colleague about a meeting, search and order from a nearby flower shop, check how the market is doing, upgrade their home insurance, book a taxi, and then later order a new pair of pants while paying for it all using WeChat Pay -- all within the WeChat platform 

This is how Ambani plans to use both Facebook and WhatsApp to create his true piece de resistance. 

Currently, social media and online payments are the two categories that Reliance has no presence in -- well, it has Jio Money, but that hasn't exactly set the world on fire. What this means is that WhatsApp and Facebook will become invaluable allies for the Indian company. At the same time, Reliance will get some desperately needed cash to chip away at its gigantic $22 billion debt, as of March 2019, especially since a 20% stake sale of its oil and gas business, valued at $15 billion, to Saudi Arabia's Aramco is now in peril.

A big part of this plan to work with Facebook was linking arms with a select crop of India's 12 million or so kirana stores. Indians for eons have done their shopping through a neighbourhood kirana -- a store, sort of like your corner convenience variety, except instead of selling a limited number of good such as cigarettes and chips, these stores flog pretty much everything you need for survival, from toothpaste to lentils and rice to phone refills. 

Reliance's plan will be to spend some cash to bring 5 million of these stores that make over $12,000 a month into the digital economy by 2023. This will entail installing a digital backend for them which they are reluctant to spend on, adding a Jio mobile point-of-sale device, giving them some supply chain software, and teaching them inventory management skills. Naturally, they will also be linked to a 4G network -- guess who owns the biggest one? -- so customers can easily place an order. 

This must have been what Facebook was hyper-aware of -- the ability of Reliance to reach almost every neighbourhood in India up to the last mile. More thrilling for both companies will be the enormous data bonanza in the form of detailed and comprehensive information about the Indian shopper to a potentially micro-geographical level.   

However, a Reliance company spokesman said that data sharing is specifically not part of the deal, although there's no telling if this will remain the case in the future.   

Facebook and Reliance are not alone in being aware of this. The kirana store has come into vogue over the last six months, especially since the COVID-19 nightmare began. Unable to often deliver packages during the pandemic, Amazon and Flipkart have had to rely on these neighbourhood outfits to do so. 

What has now commenced is a pitch battle by the big e-commerce players, Amazon and Flipkart, to co-opt kiranas as quickly as possible before Jio comes in at full force -- the great three-way race to woo the new belle of the retail scene has begun.  

GAME, SET, MATCH

Now, this last bit of the Facebook-Reliance deal is particularly cheeky. Reliance launched an e-commerce company JioMart in January, which offers online groceries and supplies to consumers, in direct competition with both hyperlocal grocers like Grofers and BigBasket and e-commerce giants like Amazon. However, JioMart doesn't do any warehousing. Instead, it connects offline kiranas to online customers. 

Obviously, the plan to digitise kirana stores was thought of in tandem with the birth of JioMart. And right after the Facebook deal, as the ink was still drying, Reliance announced that WhatsApp would host a special number for the messaging app's 400 million customers that allows them to order groceries through JioMart, which would, in turn, route them to their nearest kirana store.

JioMart will also link 60 million small to medium-sized businesses like hardware stores and tailors, along with 120 million farmers. I feel exhausted just trying to absorb the scale of this endeavour. 

Clearly, WhatsApp was the lynchpin for the deal, one that now threatens the very existence of Amazon and Flipkart as the Reliance-Facebook combo looks toward dominating e-commerce as well. What's more, JioMart in all likelihood will soon start ruthlessly negotiating prices with suppliers and, after tacking on their cut, send products out to kirana stores too. 

Reliance already has a large wholesale business in India and Reliance Retail has over 10,000 physical stores in over 6,600 cities, so warehousing and cold storage will be a cinch. 

With e-commerce expected to balloon to over $200 billion in 2028 from $30 billion today, and online sales currently making up just 7% of all sales, Reliance could potentially take a large chunk of the Indian offline and online retail pie, especially when you tack on Facebook's algorithms.

All in all, the deal is an amazing one for India right? Er, not quite

"Rather than an innovative Silicon Valley-style enterprise, Reliance looks more like a technology monopolist in the making, whose market power could holds potentially damaging long-term implications for competition," says columnist James Crabtree, author of the Billionare Raj.

In a Facebook-Reliance world, an uber-politically-connected company along with a global social giant have the ability to feeds news, information, consumer goods, and food, which are chosen solely by them and created from their own stables. 

Add to this, the absence of an Indian data regulator that can police these companies and safeguard our privacy -- that is, if it hasn't already been co-opted by the government or industry like, for instance, India's Supreme Court has been. 

In such a world, we may end up as sheep where anything we consume, physically or digitally, is controlled by one entity. And that could be disastrous for society.

Related Coverage