The Jio Juggernaut
While the world was under lock down and India was struggling to cope with a rising number of COVID19 infections, Mukesh Ambani played his hand. While everyone else was struggling, Reliance Jio, India’s four-and-a-half year old telecoms disrupter broke free.
How?
By convincing Facebook to invest USD 5.7 billion in Jio Platforms, the holding company of Jio that is controlled by Ambani, one of the richest men in the world. For Zuckerberg & Co. this move is a long-sought after win in India, considering the epic fail that was ‘Free Basics’. For the uninitiated, Free Basics was Facebook’s plan to bring hundreds of millions of mobile phone users in India online AND into its ecosystem in one fell swoop, by launching what was essentially a portal with Facebook at its core. However, net neutrality activists saw through the move, and galvanised public opinion against the programme.
Soon after Facebook’s investment was announced, companies, funds, and PE firms started tripping over each other to try and stick their fingers in the Jio pie. Starting in May 2020, Silver Lake Partners, General Atlantic, KKR, Mubadala (the Emirati sovereign wealth fund), Abu Dhabi Investment Authority, TPG, Catterton, PIF (the Saudi Arabian sovereign wealth fund), Intel, Qualcomm, and Google all made investments into Jio.
Leaving aside the audacity and bravado with which Ambani pushed these deals through, it’s quite astonishing how Jio was able to get some of the world’s biggest investors to line up outside its door in a matter of months. And we’ve got four months left in 2020, excluding August. Who’s to say more investors won’t come?
To someone outside Asia, all this sounds too good to be true. After all, isn’t telecoms one of least-sexiest industries to be in? Isn’t it the OTT services who have really enjoyed the fruits of the boom in mobile data consumption while telecom operators have had to do all the hard work and be satisfied with meagre returns? I mean, how lucrative can a telecom service provider (or telco, for short) be, right?
Wrong.
Because you see, Jio is not just a service provider. It’s a service provider, phone manufacturer (of sorts), eCommerce retailer, streaming service provider, and mobile payments provider all rolled into one, with access to a market of 1.3 billion people.
A Jio-gantic Opportunity
Conventional business wisdom tells us that telecom services are a utility. Sure, you can convince people to stay on your network by occasionally throwing them some perk, but at the end of the day every telephone call and each kilobyte will behave in exactly the same way on every network. Just because your cell phone towers are taller, doesn’t mean that your data speeds will magically increase 🤔
My view on Jio is that it is not really a telco. Instead, Jio is a tech company that is a cross between Amazon and Alphabet.
Let me explain why.
Think of the telecom industry as a stack, similar to how you would think of say, software.
At the lowest level, you have the telcos who own the infrastructure, which is also very expensive. Then you have device manufacturers such as Apple, Google, Huawei, Samsung, Oppo, and OnePlus. Running on these phones is either iOS or some version of Android. And sitting on top of the stack, are the apps owned by companies such as Netflix, Facebook, PayTM, and Uber.
There are a few rules to the stack:
- Generally, the higher you are up the stack, the better.
Companies that operate higher up the stack, have lower capital and reinvestment needs. Think about it. Verizon and AT&T have to spend billions of dollars on building and maintaining their networks, but because they provide a very homogeneous, utilitarian service, they have to put up with a lot of competition, which lowers profitability for everyone. But that is not the case for say, Facebook or Headspace. - The more layers you control in the stack, the better.
If your business model has something to do with smartphones and you want to make money, then you need to control as many layers of the stack as you can. For example, all the FAANG (Facebook, Apple, Amazon, Netflix, Google) companies who are the darlings of Wall Street today, all control either one of more layers of the stack. This is also the same reason why a company like Xiaomi is happy to make less profits by selling phones, instead preferring to earn fat profits by bundling software like the Mi Store and Mi Browser into its phones.
The crazy thing about Jio is that it is perhaps the only company in the world to own the entire stack. And that’s what makes Jio special.
The first real clue that revealed the true extent of Jio’s ambitions came in 2017, when Jio introduced a line of feature phones named…you guessed it, JioPhone. The JioPhone was basically a feature phone with 4G connectivity. It supported several Indian regional languages, and came with staples like WhatsApp and YouTube, and also a suite of Jio-branded apps like JioCinema, JioRail, JioTV, and even Google Assistant. Most importantly though, the phone sold for around USD 20 (INR 1500). The phone sold like hot cakes, and Jio promptly captured 38% of India’s feature phone market.
Since then, Jio has focused on building out its ecosystem, which today is more like a sprawling theme park. See for yourself👇
You’d think Ambani would stop at this right? Wrong again.
In the midst of the lockdown, Jio quietly unleashed the newest weapon in its arsenal — JioMart.
JioMart is an eCommerce venture between Jio and Reliance Retail, also owned by ultimate parent Reliance Industries. The venture is hyper local in nature, and seeks to overcome the inherent difficulties in last-mile retail that are faced by incumbents like Walmart, Amazon, BigBasket and Grofers who are already in a fierce battle to win the war for online retail in India. JioMart allows small neighborhood grocery shops (or kirana stores) to start accepting orders online, while also giving them the opportunity to replenish stocks from Reliance’s network of cash-and-carry stores which can offer lower prices on wholesale purchases. Thanks to the Facebook investment, JioMart has now integrated its service with WhatsApp and Indians can place and track orders on JioMart through WhatsApp. Two months into its launch, JioMart is already fulfilling more than 250,000 daily orders and is on track to surpass 500,000 daily orders, according to company executives.
As if this wasn’t enough, Jio is now gearing up to test 5G networks in India, and has already developed a complete end-to-end 5G solution that only consists of components designed and manufactured in India. Since China and India are fighting a diplomatic tussle for influence in the Asian region, it would be interesting to see if Jio can emerge as a credible alternative to China’s Huawei and ZTE, whose components power telecom networks around the world. Heck, Ambani himself told investors last month that “Once Jio’s 5G solution is proven in India, Jio Platforms will be well positioned to be an exporter of 5G solutions to other telecom operators globally as a complete managed service”.
Of course, not everything is rosy in the house that Mukesh Ambani built. For all it’s success, Jio is yet to find a true breakout app or service from within its ecosystem. But given Ambani’s track record, it’s probably a bad idea to bet against Jio.
For now though, the wind is firmly in Jio’s sails, and the juggernaut is just getting started.
