India technology: Elephant in the room
This was a 2,000-word feature for AVCJ that centered on Jio Platforms, India’s upcoming ‘super app’ with the article focusing on the non-app aspect of the project that was oft overlooked by international media.
India’s Jio Platforms has received substantial private equity backing as it looks to build a digital platform that is all things to all people, from cable to retail. Will it succeed?
From Facebook to General Atlantic to KKR to Vista Equity Partners to Silver Lake, international investors are falling over themselves to back Jio Platforms. The company – established five months ago by India’s Reliance Industries as a holding entity for a nascent app ecosystem as well as Jio Telecom, the country’s leading mobile carrier – has raised $8.8 billion in a matter of weeks. Saudi Arabia’s Public Investment Fund will reportedly be next.
The potential fusion of online and offline technology infrastructure assets under the Reliance banner is being closely observed by countless interested parties, including India’s venture capital community. “We clearly have another elephant in the room,” says Gopal Jain, founder of Gaja Capital. “People have spent a lot of time trying to guess Amazon’s ambitions. Now they will spend just as much time trying to guess Reliance’s ambitions.”
This guessing game will likely be protracted. It is hard to fully appreciate the potential of Jio Platforms at this juncture because the company appears set engaging in battles on multiple fronts and the first skirmishes have barely begun.
“Jio Platforms is a truly homegrown Indian next generation technology leader. It’s impressive because, around the world, there are many companies offering wireless connectivity, broadband services, entertainment and developing various internet apps. Yet Jio Platforms is many of those things put in one,” says Rupen Jhaveri, a managing director on KKR’s private equity team in India. “Jio’s aspiration is to provide a unique and all-round digital experience via its super app – MyJio – and they want to help small-and-medium enterprises [SMEs] next.”
For any company seeking to interact with India’s internet users, there are several touchpoints from e-commerce to content consumption. Jio wants to cover them all, leveraging the brand recognition and subscriber base of Jio Telecom. In four years, the mobile carrier has brought 387.5 million Indians online, tempting them away from competitors with low prices.
On the box
Broadband internet services are a longstanding part of the portfolio; Jio Telecom was known as Infotel Broadband Services. Television, a mainstay of every Indian household, was added last year with the acquisition of a majority stake in two of the country’s largest cable operators. They are now part of the plans for JioFiber, a low-cost high-speed broadband network, also launched last year.
These services will be bundled together with the over-the-top (OTT) assets – news, entertainment, streaming – provided by partners to create a one-stop solution for using the internet, watching television, and streaming content. It throws up the prospect of affordable services for consumers who are currently priced out of the market as well as greater viability for businesses that rely on high-bandwidth internet access.
At present, DishTV is the market leader for OTT services with 23 million subscribers nationwide. ACT Broadband is the largest broadband internet service provider with 1.5 million customers. Both should be wary of JioFiber. Earlier this month, the company announced it had added Amazon Prime Video, India’s third biggest video streaming platform, to the collection of services users can access through their televisions.
However, it will take time for cable and internet users to migrate. According to the Telecom Authority of India, JioFiber had just 840,000 subscribers at the start of the year. Its broadband network does not have the widest coverage among internet service providers. “Wired broadband had its appeal in the past mainly because data plans were very limited. The success of Jio’s wireless telecom business will not let the broadband business reach its potential so soon,” says a Hyderabad-based analyst at credit rating agency CRISIL. “Most people do everything on their smart phones where they can get many free services anyway.”
Should it succeed, however, in becoming the main internet gateway for devices larger than a smart phone – personal computing devices are not commonly found in Indian homes – then other companies will have to negotiate with Jio Platforms for user access.
For all these ambitions, it is the planned overhaul of India’s retail network that has attracted most attention. This week, JioMart, the Jio Platforms e-commerce unit, announced it would start delivering goods across 200 cities. “India has rediscovered kirana [local neighborhood] stores in the last two months,” says Gaja’s Jain. For much of that period, a nationwide lockdown imposed to combat COVID-19 has meant few Indians could leave their homes and even e-commerce was disrupted.
Mukesh Ambani, chairman of Reliance Industries, has previously suggested that users will soon be able to shop for household goods on the app and their orders would be fulfilled by a physical JioMart store nearby. The shop’s inventory needs would be supported by Jio’s retail and logistics network. Reliance Retail, another subsidiary, currently owns the largest chain of supermarkets in the country so it’s not exactly new territory.
It remains to be seen whether consumers will continue to patronize these Jio-branded outlets – neighborhood stores carrying Jio signage, with the cost of the rebrand borne by the merchant – and do so regularly. Jain observes that this theoretical nationwide franchise of small convenience stores would need to charge the same prices as e-commerce platforms like Amazon or grocery delivery providers such as Alibaba Group-backed BigBasket.
“Jio will likely plan to sell goods below the maximum retail price for a long time and it has the capital to do that,” adds the CRISIL analyst. “Amazon and Flipkart have beta tested similar hyperlocal delivery models, but they failed. What JioMart does have going for it is Reliance Fresh [its whole foods brand], which is professionally run and present across urban India.”
TechCrunch reported a Jio Platforms representative as stating that more than 1,000 districts in the country will have JioMart stores within a year. Not only would they sell household goods, but the online catalogue is set to include electronics and office supplies. However, most of India’s 60 million- strong kirana stores are not expected to join the JioMart network. They are known to be highly efficient operators.
“Our kirana store has not changed in the last 20 years. He [the shop owner] is a very efficient guy. He accepts orders via phone calls, gives 30-day credit, and delivers anything and everything. There isn’t even a minimum order value,” explains Gaja’s Jain. “The only reason we moved to BigBazaar for certain items was pricing, variety, and the digital experience.”
Face to face
Facebook could be the missing piece of the puzzle. After all, the private equity firms only came in after the social networking giant had put up $5.7 billion for a 9.99% stake in Jio Platforms. The exact nature of the partnership is unclear.
E-commerce is certainly a frontier Facebook is keen to explore as advertising revenue growth begins to flatten. Recently, the company unveiled plans in the US for small businesses to open virtual storefronts on its platform as well as on Instagram.
In India, Facebook has a poor image. An initiative in 2015 to offer free access to a limited number of internet services through its app sparked outrage among net neutrality advocates. In addition, the company has been striving for more than two years – without success – to obtain approval from the Reserve Bank of India to launch WhatsApp Pay, a payment service affiliated with the country’s leading messaging platform.
Should WhatsApp Pay finally make its debut, having Jio Platforms as a local partner is expected to catapult the business to top spot in the market. Moreover, the payment service would likely integrate with JioMart, making it even easier to shop. “All India communicates and transacts on WhatsApp but Facebook makes no money from it almost as if it’s a public utility. I feel that Jio will come up with an innovative way to leverage WhatsApp,” says Jain.
The commercial partnership between the two companies is confidential, and details are expected to only be revealed in the coming months, but many analysts says it is definitely one of the key attractions for private equity investors.
In the end, if Jio Platforms’ plans are realized, it will become every bit the elephant in the room. “If you consider the connectivity that they’re looking to provide to individuals, SMEs and enterprises, Jio Platforms is extremely well positioned to be the provider of choice for many more cloud-based B2C services and B2B SaaS [software-as-a-service] solutions,” says Lucian Schönefelder, KKR’s head of technology for Asia. “I think they have already made a huge impact on the digitization of the Indian economy and will continue to do so.”
Meanwhile, Indian venture capital investors backing direct competitors to Jio Platforms believe they will have to tread a lot more carefully – some business models could quickly become unsustainable when pitted against a well-funded giant. Jio Platforms will pose a threat in multiple consumer sub- sectors. Earlier in the month, for example, local media reported that Reliance Industries was looking to buy a stake in online pharmacy Netmeds.
“What will life be like for other e-pharmacy companies if Reliance is serious about online medicine delivery?” asks Jain. “Jio will have its fingers in various parts of the e-commerce pie. The only question is which parts?”