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April 22, 2020 - BY Admin

The Great Facebook-Jio Deal: Facebook Buys 10% Stake by Investing 43,574 crore rs ($5.7) Billion in Jio|JIO FACEBOOK DEAL

 

India is the biggest market for Facebook with nearly 400 million active users while Reliance Jio is holding the top spot in the mobile telecom business in the country with 370 million subscribers. However, both Facebook and Jio are looking for other opportunities to strengthen their foothold.

Facebook wants to beat GooglePay and Paytm in the digital payment services while Jio is planning to start a new online grocery marketplace called JioMart by knocking Amazon.com’s Pantry and Walmart’s BigBasket. The partnership between these two giants could potentially pave the way for both companies to open new commercial opportunities, make more money, and contribute more to the digital economy of India.

Facebook announced it is investing INR 43,574 crore into Jio Platforms on Wednesday, April 22, 2020, making the social media giant a minority shareholder in Jio. On the other hand, the investment brings Jio’s enterprise value to $65.95 billion (INR 4.62 lakh crore).

But why Facebook is investing billion dollars in Jio?

Ambani’s Bigger Plan

Ambani has been recently working to enter the$375 billion grocery industry by starting JioMart. With this big investment from Facebook, JioMart will enable people to get faster delivery via Facebook’s WhatsApp chat app. People can order any grocery item from their local shops and get faster delivery. As Ambani says, he launched Jio in 2016 as he was driven by the dream of INDIA’S DIGITAL SARVODAYA and its two missions: ‘Ease of Living’ and ‘Ease of Doing Business’. JioMart will connect people with 3 crores Kirana (or grocery) stores in their neighborhood and WhatsApp payment service will aid this mission.

Need to Cut the Debt

The total eCommerce sales in India are likely to grow at 32% CAGR from 2017 to 2021, according to EY. The online retail market is likely to grow to $1.2 trillion by 2021. That’s why Reliance Jio was expanding its retail business for a very long time. But the expansion was based on the profits from oil and petroleum businesses. With decreasing oil prices, Jio’s debt due to retail business expansion rose to $40 billion as of September 2019. The Facebook deal will help Ambani’s Jio to lower the debt and carry on with their dream to start an online grocery marketplace.

The Winning Deal

The Indian tech market is growing but the regulations are shifting as well. For a foreign company like Facebook, it becomes difficult to enter developing markets like India if they don’t sign an alliance with a national company. Facebook can now cash in from digital services by partnering with Jio as a wide swath of opportunities lies ahead. On the other side, Jio can continue growing its retail business while extending benefits to key stakeholders in the Indian market like agricultural workers, small businesses, and healthcare providers.

Regarding this investment, Mark Zuckerberg, co-founder and chief executive of Facebook, said, “We’re making a financial investment, and more than that, we’re committing to working together on some major projects that will open up commerce opportunities for people across India.”

Mukesh Ambani said in a statement released after this news came out, “The synergy between Jio and Facebook will help realize Prime Minister Shri Narendra Modi’s ‘Digital India’ Mission with its two ambitious goals — ‘Ease of Living’ and ‘Ease of Doing Business’ – for every single category of Indian people without exception. In the post-Corona era, I am confident of India’s economic recovery and resurgence in the shortest period of time. The partnership will surely make an important contribution to this transformation.”

As the countries across the world including India have gone digital due to the coronavirus outbreak, the demand for online services will rise in the post-COVID-19 era. The Facebook-Jio deal will surely contribute to the surging demand and economic transformation post-Corona times and beyond.