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Mukesh Ambani, chairman of Reliance Industries.
Mukesh Ambani, chairman of Reliance Industries.

Opinion | The most expensive seat at India’s e-commerce table

The Reliance Jio-Facebook deal is set to transform e-commerce in more ways than one can imagine

Internet startups have always advocated strict net neutrality—the principle that all internet traffic should be treated equally. And why not? This ensured a level playing field for both giants and startups. No wonder so many fledgling US internet startups went on to become mega players. That was up until December 2017, when the Donald- Trump-appointed Federal Communications Commission chairman Ajit Pai shredded that idea to bits by reversing net neutrality in the US. Google, Netflix and Facebook were some of the loud voices that opposed this reversal. Several internet service providers have since pledged to practise net neutrality, even though the laws do not require them to. Those voices of opposition have seemingly won, but what’s noteworthy is that Facebook’s stance in defending net neutrality has been wobbly at best.

Back in 2015, Jio introduced Facebook Free Basics on its network. This was Facebook’s effort, along with six others (they called themselves “internet.org"), to deliver free internet access via an application called Free Basics. It was a platform through which internet.org would deliver its own services, and it found an able partner in Jio, which as the new kid on the block at the time, seemed to see in it a tool to deepen India’s internet penetration. Millions in India logged on to Jio, lured by with its super-low prices and the free internet access subsidized by Facebook. With this platform, Facebook was found to be practising the opposite of net neutrality—blocking access to all sites other than internet.org services. Quite rightly, India’s telecom regulatory banned the platform. Free Basics now remains a staple only in a few economically-challenged Asian and African nations. India chose wisely.

Five years later, the freshly announced Facebook-Reliance Industries Ltd deal, however, is quite different from the former’s previous feeble attempt at creating a monopolistic business in India. This time, it is having to pay a fair premium to buy a foothold in the country and has met its match in Reliance. The deal is likely to prove much bigger for Reliance than its minority investor. For starters, at current exchange rates, Reliance’s Jio Platforms subsidiary, in which Facebook is buying a nearly 10% stake, is being valued at over 4.6 trillion, a few shades higher than the street valuation. The newly infused capital will help Reliance reduce its debt and have a positive effect on its cash flows, profitability and other financial indicators. Equity research firms, therefore, are reiterating their “buy" rating on Reliance’s stock. But lurking behind the positive impact on Reliance’s spreadsheets is the impact on its business itself. The motivation for Reliance and Facebook seems neither social media reach, nor advertising revenue. This is new-generation retail commerce taking shape. While announcing the deal on social media videos from their respective homes, Reliance’s Mukesh Ambani and Facebook’s Mark Zuckerberg spoke of the immense opportunities it would present to Indian consumers. It’s true that how Indians shop may be set to change forever.

To grasp the scale of the consequences of this deal, we should study the development of Chinese conglomerate Tencent’s chat service WeiXin. The service is known in the rest of the world as WeChat. WhatsApp is the world’s largest chat application, with over 1.6 billion users, followed by Facebook Messenger (1.3 billion) and WeChat (1.1 billion). In 2014, WeChat launched WeChat Pay, which grew to 800 million users by November 2018. WeChat also introduced official accounts for businesses and subsequently mini programs (like apps within an app). There are now over 1 million WeChat mini programs, which are conducting commerce with an ecosystem around their business accounts and payment functions. This is a thriving environment, with group-buying, social selling, key opinion leader-led sales, unattended stores and every other purchase experience one can imagine. Facebook, with more than twice the number of users on its messaging applications, is but an infant in this field with almost no commerce capability. It has had neither the payment capability, nor the market, nor any demonstrable retail acumen, nor even a worthy commerce partner.

Enter Reliance Retail. At last year’s shareholder meeting, Ambani declared Reliance Jio and Reliance Retail the group’s new golden goslings, with expectations they would soon contribute more than half of its operating earnings. Reliance’s retail business already has a presence in over 7,000 cities and towns, and is poised to bring the digital commerce revolution to millions of kirana stores with its JioMart venture. With the help of Facebook’s messaging platforms, the smallest of mom-and-pop stores can be empowered to compete with the world’s biggest retailers. Those who expected Amazon and Walmart to sweep the Indian retail space haven’t seen anything yet. With the potential digitalization of this $700 billion Indian sundry retail industry, the biggest gainers will be small traders and consumers. Competitors would need to up their game to stay relevant.

Years ago, over coffee with a friend, we spoke of how India might have let go of a massive opportunity to seed local internet giants by allowing global players unfettered access to its markets. Seven years on, I am watching developments with glee. An international giant just paid one heck of a hefty ticket price for a minority seat at the table of Indian e-commerce.

Jyotirmoy Saha is founder and chief executive officer of August Media

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