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Investors have jumped at the chance to get a piece Jio and its attempt to digitize India.

Photo: Getty Images / NurPhoto / Contributor
Power

Why investors are in love with Jio

They're betting $10 billion on the WeChat of India.

In the past five weeks, amid global economic turmoil, some of the world's largest investors have poured a combined $10 billion into Jio Platforms, an Indian tech company poorly understood outside the country. But why — and why now?

A $5.7 billion investment from Facebook announced on April 21 seems to have opened the floodgates to private equity investment, with Silver Lake, Vista Equity Partners, General Atlantic and KKR cumulatively pouring in a further $4.62 billion at a $65 billion valuation. Abu Dhabi, Saudi Arabia, Microsoft, and Twitter are also reportedly in talks to invest a further $5.5 billion. It's an astonishingly huge fundraising round.

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Jio Platforms was, until recently, wholly owned by Reliance Industries Limited, India's most valuable company. Led by Mukesh Ambani, Asia's richest man, RIL is as conglomerate-y as conglomerates get: It's a major player in everything from oil to TV production, pharmaceuticals to retail. And in recent years, its crown jewel has been Reliance Jio Infocomm Limited, also known as Jio (but which we'll call RJIL to avoid confusion).

Sanchit Vir Gogia, CEO of Greyhound Research, told Protocol that RIL's tech ambitions have always been huge. Just as RIL has tentacles in every part of the offline world, it wants to be omnipresent online, making money wherever consumers spend it. But first, Indians had to actually be online. "Jio understood that the India problem was the connectivity problem," Gogia said. "The connectivity was so patchy that it was impossible to get all of India online, unless the connectivity problem was solved. So they went after that problem first."

Building an empire

In 2010, RIL controversially acquired a chunk of 4G spectrum, putting it under a new company named RJIL. It then spent six years and $33 billion building out the infrastructure required to turn that spectrum into a nationwide 4G network, which it launched in 2016. Thanks to ultra-aggressive pricing, the network was a huge success, signing up 100 million users in 170 days of its launch. It also sparked a price war that ultimately drove other carriers out of business, leaving RJIL as the dominant player in India's telecom market.

RJIL then started to execute on its grander ambitions, by launching and acquiring a range of digital services. And late last year, it was transformed into a pure-play tech company: Its physical tower assets were sold off, and its debt load of around $14 billion transferred to RIL. Jio Platforms, which now owns RJIL, was created as a new holding company in November, partly with the intention of seeking external investors — a necessity for RIL, which needs to pay off all that debt.

Around $10 billion later, it's clear that investors jumped at the chance to get a piece of India's digitization, which is still in its early stages. "45% of the potential population, right now, are on digital," said Counterpoint Research's Tarun Pathak. "We have close to 300 million subscribers who will actually enter the internet era for the very first time in the next five years." Jio, which has already shown that it knows what it's doing, is a pretty safe bet for private equity investors — especially considering that an IPO is reportedly planned for as soon as next year.

But the new investors are presumably interested in more than just network subscribers. (Facebook, Silver Lake and General Atlantic declined to discuss the investment with Protocol; Vista Equity Partners, KKR and RIL did not respond.) They've also been drawn in by Jio's long-term promise.

The WeChat of India?

"Ultimately, the idea is that if as a customer you're on the Jio network, they want you to spend every single dollar that you potentially spend outside, on their network," Gogia said. It's akin to the WeChat model in China: Provide a wide range of services, with synergies between them, so that consumers can live their entire digital lives within one walled garden. For example, Pathak said, if you pay for Jio's online learning service using Jio's payment service, you might get a discount. If Jio can pull this off, the rewards could be immense: Tencent, WeChat's owner, is worth around $500 billion, five times RIL's entire valuation.

Thanks to RIL's significant scale in India, the opportunities are vast. Nowhere is that more true than in commerce. RIL already has a significant retail presence, commandeering a big chunk of India's organized retail market through Reliance Fresh and Reliance Smart, its grocery chains. (It also has relationships directly with farmers, through its app Jio Krishi.) But it's never been able to fully crack ecommerce, with Amazon and Flipkart conquering the market instead. "If you are doing ecommerce, the first thing you are looking for is the payment mechanism," Pathak said. And while RIL does have JioMoney, it's not nearly widely adopted enough to work; in Pathak's words, it adds a lot of "push" to the business model, requiring consumers to be educated on a whole new system.

That's where Facebook comes in. Most Indian retail comprises unorganized "kirana" shops: small, independent neighborhood stores. Those stores currently don't have a perfect way to sell online, so they build their own ad-hoc solutions. While in quarantine, Pathak said, a local kirana store asked him to send his order via WhatsApp. It then sent someone to deliver the order to his home. "A lot of these smaller retailers are doing lots of transactions on WhatsApp," Pathak said, "but for Facebook, it does not count as money."

Facebook's been trying to fix that for a while, with WhatsApp Pay one notable attempt. But it has encountered major regulatory difficulties, which Pathak and Gogia partly attribute to the company's limited on-the-ground experience in India. After all, Facebook's other big attempt to crack the Indian market with Free Basics, which provided free internet, but only for certain services, was banned. Even if Facebook did get approval for WhatsApp Pay (which is currently under review by antitrust authorities), it would be incredibly challenging to scale. "Had Facebook had to do the entire last mile delivery [and] supplier onboarding themselves," Gogia said, "the journey in terms of growth would be nearly impossible."

Facebook's big bet

With Jio, though, things make a little more sense. RIL's new ecommerce platform, JioMart, is in front of millions of users from day one. Facebook, meanwhile, now has an ecommerce platform to offer users, without having to build a complicated logistics network itself. That's good not only for WhatsApp Pay, but also for Facebook's advertising business. "The future of commerce," Pathak said, will be "the discovery of these products." With millions of kirana stores all vying for shoppers' attention, heavy marketing spending is inevitable.

That will play a key role in maintaining Facebook's growth. While Facebook made over $34 per North American user last quarter, it made just $3.06 per user in the Asia-Pacific region. With China off the table, India presents Facebook's last big growth opportunity. Jio provides a chance at capturing that.

It's not going to be easy. While Jio wants to be the WeChat of India, executing on that will be tough, not least because Jio is late to the party. Whereas Tencent entered the Chinese ecosystem when it was mostly undeveloped, the Indian market is already very fragmented. "Category leaders have been established," Gogia said. "Entering the category now will be back-breaking and a very expensive task." And one that will require consumers to change their behavior, too: Pathak says the only way to create a super app in India will probably involve acquiring some of those category leaders to surmount the behavioral problem — a process that will, at the very least, take time, and an awful lot of money.

Thanks to the flood of new investment, at least one of those isn't a problem.

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