Why Facebook, Reliance Jio deal is a wake-up call for Amazon, Flipkart

Topics Reliance Jio | Facebook | Flipkart

Indian's e-commerce wakes up to news of Facebook buying minority stake in Reliance JioMart.
As Facebook, the world’s largest social media company, invests $5.7 billion for a 9.99 per cent stake in Reliance Jio Platforms, the deal is also seen as a powerful alliance to take on formidable players in e-commerce and payments space such as Amazon, Flipkart and Google.

 
The partnership is expected to help Mukesh Ambani-led Reliance’s e-commerce venture JioMart to take on players such as Amazon and Flipkart in the Indian online commerce market, backed by Facebook. According to industry insiders and analysts, the market opportunities for online commerce in the country is expected to touch $200 billion by 2028 from $30 billion in 2018.

 
“(Out of the investment made by Facebook) about Rs 15,000 crore would remain with Jio, and this is a huge amount which JioMart can use for building its (e-commerce) network. If they are able to execute this properly on the ground, I think they are going to create massive problems for the likes of Amazon and Flipkart due to the kind of scale that they can achieve,” said Satish Meena, a senior forecast analyst at Forrester Research.

To begin with, Meena said, JioMart is expected to aggressively chase the grocery space, where they can reach a large number of households and work in a way where customers end up buying a lot of services from Reliance itself, related to areas such as mobile connection, television, music and education. “The bigger worry for Amazon and Flipkart now is to reevaluate their business model or logistics as they are not able to fulfil the grocery demand. There is a lot of demand but companies are not ready to deliver.”

 
According to Salman Waris, managing partner at New Delhi-based specialist technology law firm TechLegis Advocates & Solicitors, backed by the investment which makes Jio the fifth-largest firm in India, the company can also create an ‘e-commerce monopoly’ and upturn e-commerce ecosystem.

Facebook wants to use WhatsApp for e-commerce opportunities with small businesses. Amazon, Flipkart can’t compete with Jio-Facebook because they don’t have an edge on data. While in the short term, there may not be much market impact as due to Covid-19 nothing significant shall happen in the next 3-6 months, however in the long term the alliance will not only counter competitors like Amazon and Flipkart, but will rupture the entire e-commerce ecosystem in the country," said Waris.

 
Waris said, while Facebook would be piggybacking on Jio providing internet access in India, this partnership threatens the very concept of net neutrality due to Jio‘s edge on data. It could lead to even more deep anti-competition tactics like deep discounting.

Nirupama Soundararajan, Head of Research and Senior Fellow at Pahle India Foundation (PIF) said that Jiomart will be a company to be reckoned with. “There will be disruption in the market. The proposed model for Jiomart is new (as it) looks to co-opt Kirana stores. Such collaborations are necessary. We may also see a significant increase in P2P (peer-to-peer) payments because of WhatsApp. Kirana stores will also have to gear up to compete amongst themselves. If and whether this would create price wars amongst Kiranas will be interesting to watch,” said Soundararajan.

 
She also said the policy framework for Indian retail is highly convoluted and lends to significant arbitrage between formats and origin of capital. “With Jiomart coming in, this regulatory arbitrage between foreign and domestic large players could affect future FDI,” said Soundararajan.

The deal is also expected to help Reliance and Facebook to take on players such as Walmart-owned PhonePe, Alibaba-backed Paytm, Google Pay and Amazon Pay in the Indian digital payments space which is expected to rise five-fold to reach $1 trillion by 2023. India is the biggest user base for Facebook with around 328 million monthly users while the company’s WhatsApp messaging app has 400 million users in the country, also the highest in the world. WhatsApp is trying to secure approval to roll out its digital payment service while the company also has plans to come up with dedicated digital payment services to small grocers.

 
“The Facebook-Jio deal is the coming together of one of the world’s biggest data platforms and India’s biggest data platform. There are multiple battles (likely to be fought) here including one for the dominance in e-commerce space and other in digital payments. In digital payments, apps like Paytm and PhonePe already facing cash crunches and this will be forced to join Jio and Facebook’s platform," said Waris.

According to Tarun Pathak, associate director at Counterpoint Research, the Jio-Facebook deal is an attempt to marry the local commerce with the social part. “We believe that e-commerce will change when the next 300 million will join the digital platform in the coming years. It will demand a localised approach, and hence both the companies will look to leverage the trend and eventually this will be a boost to the Facebook ad platform as well,” said Pathak.

 



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