This deal has been under process for quite some time now and there were many speculations in the news in recent times. This deal serves as a stepping stone for the next big Digital Revolution in India and will be empowering all the 1.3 Billion Indians, particularly for the Micro, Small and Medium Enterprises (MSMEs), small retailers/merchants, and farmers.
Now two questions arise. 1. Why does this investment make financial sense for Facebook and RIL? 2. What is the strategic purpose of Facebook and Jio that they want to achieve with this partnership?
To answer the first question-
This deal serves not just the financial purposes, but also is the base for a much larger strategic partnership that Jio and Facebook will be achieving. RIL Chairman and MD, Mr. Mukesh Ambani has announced in RIL's 42nd AGM in 2019 that, "Reliances hopes to become a zero net debt company in the next 18 months, i.e. by 31st March 2021". With the Saudi Aramco deal getting delayed due to multiple reasons including COVID-19 and crude oil futures crash, Facebook deals come right in time to help RIL achieve its goal. For Facebook, even though the revenue per user is low in India, still it contributes as one of its biggest markets and with the untapped potential of bringing millions of rural Indians on the internet.
Second Question, the strategic partnership purpose of this deal- Facebook has been trying to tap the rural India population from quite some the time now, and it seems lost with the success of TikTok particularly in the rural and low-income segment areas. With the 388+ Million users of Jio, Facebook can easily tap this segment and has already planned to launch Lasso, it's own short-form video app which will be in direct competition with TikTok.
But this is just one small part of the strategic move. The bigger picture is of bringing India online through the 388+ Million users of Jio, 300+ Million active users of Facebook and WhatsApp in India (with an aim of bringing 1 Billion Indians on these platforms).
The combined partnership will focus on empowering the 60 Million MSMEs, 120 Million Farmers and 30 Million retailers/merchants. This partnership is a a major push for JioMart e-commerce platform (which is a fully owned a subsidiary of Reliance Retail) along with currency transactions through WhatsApp and JioMoney.
The aim is to make India shop online with their nearby retailers and enabling them to pay online. Therefore, giving seamless shopping and transaction experience to the customers and opening bigger opportunities for the Indian retail industry which is currently highly fragmented and unorganized but worth USD 600 billion today. So, the opportunity for both Jio and Facebook is immense in India. This partnership also helps realize the Digital India missions of uplifting Ease of Living and Ease of Doing Business in India.
The deal is the largest FDI (Foreign Direct Investment) for a minority stake by a tech company in India. It is also one of the largest investments ever made by Facebook.
This partnership also reinforces the position of India as an important market for all the large corporations around the world. It also cements RIL's capability in incubating and building disruptive next-generation businesses, while delivering market-defining shareholder value.
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