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Business News/ Opinion / Columns/  Jio, Facebook raise the stakes against Amazon in India’s e-commerce game

Jio, Facebook raise the stakes against Amazon in India’s e-commerce game

India’s domestic consumption is set to turn into a a $6 trillion opportunity by 2030

Photo: Dheeraj Dhawan/ HtPremium
Photo: Dheeraj Dhawan/ Ht

The seeds were sown early this year. On 15 January, the world’s richest man and Amazon founder Jeff Bezos said the e-tailer would invest $1 billion in India over the next five years, bringing 10 million small and midsize local businesses online. While US companies are known to be tight-lipped about their investment plans, there is a reason why Amazon keeps announcing them.

In it, there is always a message for its competitors. This time, it was for Reliance Industries, which had just a month before, in December, rolled out an early version of JioMart—its much-anticipated online retail service, which seeks to use its technology platform to tap into India’s vast network of small neighbourhood stores known as kiranas. Therefore, Bezos’ appeal to woo such businesses could be understood. Game theory is about how you make moves in competitive situations where the outcome depends critically on your competitor’s moves. Here, signalling is just as critical as the actual action. That was Bezos’ turn. Now, Reliance has come back with a $5.7 billion deal with Facebook in lieu of a minority stake, wherein it gets a lot of money to lengthen its runway, and ensures a mention in the joint news release about unleashing “JioMart"on Facebook owned WhatsApp’s mammoth 450 million user base to turbocharge ‘kiranas’.

Jio’s ammunition has now only gotten stronger with SilverLake–the Menlo Park headquartered private equity firm and backer of tech companies like Skype, Ant Financial, Dell, Didi Chuxing, Expedia, Twitter, Airbnb—cutting a huge cheque of about $746.8 million in lieu of 1.15% stake giving it a valuation of $65 billion a premium of about 12.5% to the valuation implied by the Facebook investment.

All eyes are now on Amazon’s next move, which should not be undermined in anyway. And, while all this happens, we have now entered the second round of Indian e-commerce wars.

If round one of this battleground was a heart attack for a lot of tech startups, this is a complete seizure: The network effects will impact all spaces—payments, content, distribution, currency and, of course, commerce. The prize is enormous. Domestic consumption, which powers 60% of India’s gross domestic product (GDP) today, is expected to grow to a $6 trillion opportunity by 2030, said a Bain report. The first instalment of the e-commerce slugfest was essentially about obliterating home-grown upstarts. In round one, Amazon’s public announcements of its multi-billion dollar investments into the Indian arm were largely signals to rivals and their backers that “stay away from investing or be doomed." On display was the famous Silicon Valley growth doctrine “Blitzscaling"—or losing money to win—which prioritizes “speed over efficiency", to achieve massive scale at incredible speed in order to seize the ground before competitors do.

The second round brings Amazon face to face with Jio, which is well versed with such a playbook: Jio’s entry has shaken the telecom business model—free voice calls and disruptive packages, and freebies which incumbents find difficult to match. The result: Stiff losses, value erosion, mergers and even bankruptcies. In other words, throw money to control consumers, ‘monopoly leveraging’ and raise prices at will.

Having spent close to $50billion very fast to build a subscriber base of 340 million, it has now created a “Jio-ecosystem", which is difficult to replicate. It is seeking to become the home-grown “digital" monopoly—wherein every digital access or service that we in India avail, could be through Jio—either network, device or content. Meanwhile, Amazon already controls roughly 40% of the US e-commerce market and is on track to own 50% by 2021.

Then there is internet superstar Facebook, which suffers huge techlash from time to time. Having been shunned in China, India is one of the world’s biggest markets, also the fastest growing mobile internet market, and the extent to which Facebook succeeds here could determine much of its medium-term future. It will put all its force behind it, especially so, as its history in India is complicated. Facebook gets a powerful local ally and also monetization options.

Third, irrelevancy can happen remarkably quickly. True in any industry, but especially in digital technology. Market shifts happen. Facebook is quick to realize such shifts, and that gets reflected in its acquisitions and the top dollars it pays for them. For India, that shift is “mobile" is “the" internet. As we head into the second round of e-commerce wars, there are some important questions to ask: What will the future consumer look like?

Will kiranas move to digital so easily? Is having monopolies good for consumers?

Shrija Agrawal is executive editor, HT Ideas Lab, Hindustan Times Digital. Due Diligence will cover issues in India’s venture capital, private equity, deals and startups space.

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Published: 05 May 2020, 11:35 PM IST
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