Mukesh Ambani’s Jio has an advantage over American online companies in India
by Ignatius Chithelen author Passage from India to America*
Mukesh Ambani’s Jio Platforms is like a giant, mobile toll booth operator in India. About 390 million Indians pay to use its cellphone services to make calls, view videos on Google’s YouTube, send text messages, join groups and exchange videos and texts via Facebook’s WhatsApp, send money to relatives via Google Pay, buy goods on Amazon and Flipkart, get a taxi via Uber and access other goods and services sold online.
Jio is a subsidiary of Ambani’s Reliance Industries, India’s largest business group. In the year ended March 2020, Reliance had a net profit of $5.3 billion on revenues of $87.1 billion. Ambani, 63, with an estimated net worth of $58 billion, is India’s richest person.
Major investors eager to invest in Ambani’s Jio
The number of Jio subscribers is 50% greater than that of the next two mobile service providers combined. Bharati Airtel has 142 million subscribers and Vodafone 118 million. So, any business as well as other entities, including political parties, keen to access the largest group of online consumers in India, need to go through Jio.
Given its dominant and growing business, it is not surprising that major global companies and investors are eagerly buying stakes in Jio, with Mubadala Investment being the latest. On June 5, Abu Dhabi’s national fund said it will pay $1.2 billion for a 1.9% stake in Jio, valuing Ambani’s mobile business at $65 billion. Reliance is reportedly selling part of its stake in Jio to Mubadala, Facebook and others to quickly pay off and reduce its $21.3 billion debt load.
Razor and razor blade strategy
In 2016, Ambani launched Jio offering free lifetime local calls, free calls within India for four months, free use of mobile application services – worth $214 (Rs.15,000) a year - for 16 months, one gigabyte of data for 70 cents (Rs.50) per month and a 25% discount to students. Jio also sold its own cellphones starting at 27 cents (Rs.19) for the basic entry level phone and $71 (Rs.4,999) service for the most advanced phone, far below the prices charged by South Korea’s Samsung and China’s Xiaomi. Ambani reportedly got the business licenses, overcame massive regulatory hurdles very quickly and could launch a price war against established rivals due to his political ties to Prime Minister Narendra Modi and the ruling Bharatiya Janata party. While announcing the service, Ambani said that “Jio is dedicated to realising the Prime Minister’s inspiring vision of ‘Digital India’ for (all) Indians.” In the past though, rival cellphone service providers also used political connections to their business advantage.
Analysts saw Ambani as applying the long successful razor-razor blade business strategy. Sell the razor, in this case cellphones, very cheap and perhaps at a loss. Get the consumer attracted to using the blades, in Jio’s case the online services. In this way, Jio could secure many first-time cellphone users, since they could afford the cheap phones, as well as take customers away from long established rivals Bharti Airtel and Vodafone. Initially, the bulk of Jio’s new customers bought its cheaper flip phones. Today, more of its customers are buying smartphones which enable them to use various mobile applications.
The tool to dominate online commerce
Ambani apparently has a larger goal, namely to dominate digital commerce in India. Five years ago, when he launched Jio, major American and Chinese online goods and services companies were investing billions of dollars in India to gain access to its rapidly growing consumer market. So, why not offer cheap, reliable mobile services, attract the most consumers and then seek capital and technology, pursue new mobile business opportunities and also perhaps charge a toll gate fee, in terms of a share of revenues, to the mainly American digital companies who need Jio to connect to the most consumers?
Jio’s dominant share among Indian consumers offers Ambani a huge advantage. Reliance is using Jio to expand its online retail operations, in its competition against its two larger American rivals, Amazon and Walmart’s Flipkart. Long term, much of Jio’s profits will likely come from selling goods and services to its customers and only partly by a gradual increase in the prices for the mobile services. Currently Jio’s monthly charges for mobile services is cheaper than that of its rivals.
Why Facebook needs Jio
A logical extension for Jio would have been to set up its own social media site. Perhaps Ambani realized it would be expensive and also difficult to dislodge Facebook. India is Facebook’s largest market, with over 350 million Facebook users and over 400 million using its WhatsApp feature. Its Instagram app is used by over 90 million in India, its second largest market after the U.S.
Apparently Facebook too wants to pre-empt Jio’s entry into social media and other apps. In April, Facebook invested $5.7 billion (Rs.43,574 Crores,) for a 10% stake in Jio. This was Facebook’s biggest investment in India and its largest anywhere since its 2014 purchase of WhatsApp for $19 billion.
Facebook, Google, Amazon, Uber and other American social media and technology companies, are aggressively pursuing greater access to the Indian consumer market, the second largest in the world, to fuel future growth in revenues and profits. The American companies are not allowed to operate in China, the biggest market.
“India is in the midst of one of the most dynamic social and economic transformations the world has ever seen, driven by the rapid adoption of digital technologies. In just the past five years, more than 560 million people in India have gained access to the internet,” Facebook noted at the time of its investment in Jio.
Facebook added that it plans to collaborate with Jio to create “new ways for people and businesses to operate more effectively in the growing digital economy.” One goal is to link up JioMart, Jio’s online sales platform, with WhatsApp, to “enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience.”
In 2016, around the time of Jio’s launch, the government of India rejected Facebook’s application to offer a free internet service in India. Apparently, Facebook was trying to achieve what Jio has managed to do – build a large captive base of mobile internet users and then leverage them for commercial benefit. Ambani has decisively won round one over his American competitors. What happens in the next rounds, especially when Modi’s government may need foreign capital to cover its foreign account deficits, is an open question.
