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Why Facebook is spending billions for a minority stake in Reliance Jio?

The social media giant apparently seeks to catch up on mobile commerce after its WhatsApp Pay failed to make a mark.

Facebook (FB) is no stranger to large acquisitions. The social media giant bought Instagram for $1 billion in 2012, WhatsApp for $19 billion in 2014, and virtual reality firm Oculus VR the same year for another $2 billion.

In all three instances, the common denominators were obvious. The deals all gave FB majority ownership, and brought in technology that the world’s largest social network either didn’t have, or saw as prime bolt-on acquisitions.

Its latest investment of almost $5.7 billion in Reliance’s Jio — for just 10 per cent stake — makes the deal an aberration.

“This is the single biggest minority investment by a technology player in India,” said an investment banker who’s worked on large inbound deals. India is among the largest communities globally for the company, with close to 328 million users. Instagram has millions of accounts in India, and WhatsApp announced in 2019 that it had 400 million users in the country, making it the biggest market outside the US.

Not lagging, Jio recently announced that it had the largest subscriber base with around 400 million users. “The bigger picture is that with everything going on in China — which, in any case, is closed to Facebook — and the growing reluctance to engage with businesses there, India would then be the largest “user base in the world that has not been fully harvested”, said one technology analyst.

However, given that the user base of Facebook and Instagram may not overlap with that of low-cost telecom services, FB could be vying for other targets.

“Online payments will only accelerate,” said Raja Lahiri, partner at Grant Thornton Advisory. “The FB-Jio partnership could create a gateway that serves commerce for the future,” he added. Facebook didn’t respond to whether there could be a brand new messenger system built in the future.

According to a report by Credit Suisse, the partnerships between Jio, and JioMart, which is a new commerce initiative by Reliance Retail could see the WhatsApp messenger service serve as a multiplying enabler. FB’s entry into India has seen the firm do things differently from other markets. The model flipped here because users first accessed Facebook on a phone instead of a desktop, thus making the mobile the cornerstone of their strategy.

In 2012, the platform was launched in local Indian languages. Yet, it hasn’t enabled the company to monetize the market as much as it had targeted to.

The digital advertisement pie was valued at Rs 13,700 crore in 2019, with Google and Facebook reaping 70 per cent of the same. Industry executives estimate Google to be holding on to a lion’s share of the slice.

Facebook hasn’t invested very much in India over the last eight years, the analyst said. “There are no huge development centers in Bengaluru, nor an R&D office for cutting edge technology,” the analyst added. This makes FB’s sudden and large investment point towards some catching-up being done.

FB’s payment platform WhatsApp Pay — which had attempted to debut in India last year but without success — serves to offer immense business advantage when combined with the way retail is poised to operate, once it gets clearances.

WhatsApp Pay has been struggling to get regulatory approval, even though others like Google Pay have cleared similar hurdles.

Facebook founder Mark Zuckerberg has been known to tell his managers to adopt “the hacker way”, or “move fast and break things”.

Time will tell if dialing Jio will lead Facebook to break new ground.


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