My colleague Tarun eloquently summarized his perspective on how Facebook’s $5.7 billion investment in Reliance Jio platforms will help Facebook monetize Whatsapp. This can be the ‘eureka’ moment for the Indian digital commerce sector to offer a mobile platform and services to the businesses which are still not benefitting from intersection of mobile, software and internet.
This is one of the biggest deals in India’s telco history and second biggest for Facebook after its Whatsapp acquisition.
While it is quite straightforward how Reliance Jio, which has grown to become the top Indian operator, benefits from this deal. The mobile giant gets the dollars to reduce its debt & have access to Facebook’s technologies. However, the larger question here is what’s in it for Facebook? Even though it can be considered a long-term strategic bet, what will need to happen for Facebook to reap a healthy ROI on this huge $5.7 billion investment?
We see the opportunity for Facebook to recover at least 5x on its investment over the next few years. This deal is much more than Whatsapp-Jio digital commerce solutions. Not certain if this is what Mr. Zuckerberg had in mind, but certainly the expectation is a substantial return on this massive investment. For understanding it better, let’s deep-dive into the current capabilities of both of the tech giants and where there are synergies for deeper integration and who has the most to gain?
- Ad Platform Integration into Jio Platforms: This is the biggest and only way to recoup big $$$. By targeting the Jio user base, Facebook will be receiving a revenue % cut as Jio, thus far, has failed to monetize its ~400M subscribers via advertising.
- Digital Commerce: While Whatsapp is touted to be “the channel”, the real $$ will come from the % cut on the commerce transactions (margin and commissions) over the platform via millions of SMEs & users. Average transaction/SME for Facebook is the metric Facebook will be keeping an eye on.
- Whatsapp: Big opportunity to white label Whatsapp for Business into a platform powering Jio’s properties and monetizing via customization for different SMEs to setup channels/ store (Shopify model) or consumption model for communication & commerce.
- Social Graph: Obviously having access to close to half a billion subs (projected) will greatly enhance Facebook’s Social Graph, further attracting marketers & higher bid rates. The traditional Facebook advertising business will get a shot in the arm vs. Google and others.
- Facebook Connectivity: The business model is not entirely known but Facebook’s aggression to rope in ISPs and influence open network architecture (potentially to its long-term access benefit) and the current positioning of bringing Internet to masses which indirectly expands its TAM of potential advertisers and audience. With Jio this should be part of Facebook’s long-term strategy.
- Content: Jio TV has been the most successful of Jio’s digital properties. Facebook could see this as an opportunity to scale its content ambitions in the second largest market in the world (largest if you leave out China). Cross-selling gaming and video content to Jio’s growing user base would be lucrative. However, this is relatively tougher and has a high CAPEX vs. the above opportunities of monetization. We discussed this six years ago why Facebook should have gone aggressive with its content ambitions. Players such as Spotify and Netflix are leaders handsomely attracting ears and eyes and a greater share of digital life.
Privacy & Regulatory Hurdles Galore
Having said that, Facebook has multiple avenues to monetize this strategic investment but lot will depend also on how the government sees this (and potential competitors which will lobby hard against the deal). There will need to be high transparency on the data sharing agreements between the two giants. Further, the user data and platform cannot be misused for intrusive or targeted schemes similar to Facebook’s scandalous history, as the trust factor is fairly low. Thirdly, Indian government could be concerned about the amount of data access Facebook will have.
Future of Telcos
It is said that data is the new oil. I would argue data is the new “crude” and what companies like Jio or Facebook or Google do with this crude converting into Big information is going to shape the future business model in the telco space as everyone is looking to become an end-to-end internet player rather than a telco. I believe if this trend continues, in the next ten years, we could see e-commerce, content, cloud and social tech companies replacing traditional telcos to sell end-to-end services from communication to content to commerce to cloud to collaboration services.