The Outline By Inc42+: Big Tech X Indian Telecom

Dear Subscriber,

The business world seems to be compensating for the loss of smog in our skies. There’s a lot of mystery and hope flying in from the west. We saw the early signs of this drift in early May, when Facebook picked up 9.9% stake in Reliance Jio Platforms. Even then, The Outline has noted the probability of other big tech giants following suit. Those early predictions are now looking more and more true in the past two weeks with reports of Amazon backing Airtel and Google investing in Vodafone Idea.

While Amazon is said to be in early talks with Bharti Airtel to invest $2 Bn for a 5% stake, Google is also chasing a 5% stake in Vodafone Idea. Further, other reports this week speculate that Google is also interested in investing in Reliance Jio, which has already raised close to INR 1 Lakh Cr since April, giving up over 20% of the company.

The timing seems to be perfect for both tech giants and telecom companies. Vodafone Idea and Airtel have been hit the hardest by the Indian government’s tax policies which has given them a bill of over INR 101 Lakh Cr. Reliance Jio has a relatively smaller bill to pay given that it’s the newest player in the market, but it’s clear that India’s telcos are starved for capital.

On the other end, big tech’s interest in these companies is rooted in its unending quest for user data. India is home to over 504 Mn active internet users and the number is expected to grow exponentially. Partnering with Indian telecom players gives tech giants a clear path to hundreds of millions of Indian smartphone and mobile users. Ultimately, it’s all about data; that’s what drives advertising revenue, ecommerce, mobile apps, virtual assistants, social media algorithms, payments and cloud services — all of which are pivotal to big tech’s ambitions in India.

Chasing The Next Billion

Combined Bharti Airtel, Reliance Jio and Vodafone own around 90% of the total wireless subscribers in India. If the Amazon-Airtel, Google-Vodafone Idea deals do happen, this might help Amazon and Google bundle their services for the telco’s subscriber base.

Coronavirus has expedited the digitisation of both Indian consumers and MSMEs. Sectors like ecommerce, digital payments, cloud services have seen exponential growth post the coronavirus lockdown and large scale investments in telcos will put tech giants in an opportune position to capture these new users. That’s the primary thought behind Facebook picking up such a large chunk of Reliance Jio.

Even before the coronavirus lockdown, ecommerce was seeing steady growth in Indian market but the pandemic accelerated the curve to make ecommerce an essential service. According to Capgemini research of consumer sentiment, in the next six to nine months Indian consumers would decrease their shopping at physical retail stores and over 46% of Indian will shop at physical retail stores compared to 59% of Indian consumers who shopped at physical retail stores before the pandemic.

All three (Facebook, Google and Amazon) have operations in the ecommerce industry through respective entities including Facebook Shops and Marketplace, Google Shopping, and Amazon.in. In the ecommerce space, Amazon clearly has the lead over Google and Facebook. But Google Shopping is making a big aggregator play and also looking to list local kiranas and retailers and Facebook does have WhatsApp and Instagram as arms for shopping.

Concerns around using physical notes have also boosted the adoption of online payments — after a brief lull in April. Online wallets are expected to see increased traction for P2P transfers, bill payments, and retail payments. While Amazon Pay and Google Pay have taken the lead here, Facebook is looking to flesh out its fintech biz with WhatsApp Payments for individuals and small businesses.

Indeed, small businesses form a key part of the larger strategy for Facebook, Amazon and Google. It’s not just consumers who have been impacted by coronavirus, MSMEs in India have also been pushed to the brink by the lockdown. Covid-19 has changed the future for small businesses and has catapulted even the most tech-shy SMBs to adopt digital and enterprise-grade tools. The perception about SaaS and logistics tech is changing among small retailers as well as distributors.

“The SMB market is about volumes, the earlier 3 Mn user market has now become 30 Mn. They will spend less on a per unit basis but the aggregate SMBs have increased. My numbers are absolutely 5 to 10 times bigger than the market but individually these users will not pay more,” said Shashank Dixit, founder and CEO of enterprise tech startup Deskera.

Google Cloud, Microsoft Azure and AWS already have a footprint in the Indian market and with Covid making cloud a necessity for most businesses, the opportunities are expected to grow, particularly in the massive SMB space. Azure already has a partnership with Jio to cater to SMBs in the cloud computing space.

And while on the subject of small businesses, one cannot ignore that sellers have to rely on Amazon, Google and Facebook for reach and distribution as well. Google has been wooing small businesses for online listings for over two decades, while Amazon and Facebook are also working to build SMB presence through various initiatives.

Finally, there’s the matter of communication and voice services. Voice is pegged to be the next frontier of communication and business processes for ecommerce, customer service, banking, and payments. Moreover, in a country like India, voice assistants can prove to be a major help in acclimatising consumers with web applications and services.

According to a 2019 survey, half of the global internet users are using voice assistants, and India is leading the transformation with a 72% adoption rate. Further, for smart speakers too Indians were found to have a 97% satisfaction rate, which is again the highest in the world.

The Digital Dream: Vertical Integration 

Vertical integration has proven to be a massive success factor for some of the biggest tech companies in the world. Whether it is Apple or Amazon, the control over the entire value chain gives these companies when a company owns the complete value chain of its product or service right from the suppliers, to distributors, and retail locations. The balanced vertical integration being attempted by big tech giants and telecom player duos will enable them to offer lower costs in digital services in their quest to knock off existing competition such as Alibaba, Walmart-owned Flipkart, Paytm, Zoho and others in the segment. 

“These deals will only make these tech giants more powerful. If I am sold Google Cloud and its services bundled with my data connection (cloud will be offered as ‘free’), I might never even get a chance to try out Zoho,” said Deckrooster’s Vivek Raju.  

However, there’s some hope with the Competition Commission of India initiating a study on the telecom sector, along with merger and acquisition deals in the digital market. The study is designed to answer broad issues like change in competition strategies because of new technology adoption, and vertical integration between access and content services, among others issues. Exactly what privacy rights groups have been warning about with tech giants warming up their cheque books. 

Big Tech X India

It’s not just the telecom sector that big tech companies are eyeing in India. Earlier this week, Microsoft venture fund, M12, announced setting up an office in Bengaluru to bolster fundraising and partnership opportunities for Indian growth stage startups — Series A to Series C. Its express focus will be on B2B software startups. On the same lines, Facebook is working on a new fund to explore startup deals in India and other emerging markets. It has already invested in Unacademy and Meesho in India, besides Jio

Meanwhile, another US-based firm (Texas Pacific Group) TPG Capital has shown interest in Reliance Jio and is expected to invest close to $1 Bn to $1.2 Bn in the telecom major. According to reports, the deal could go up to $1.5 Bn and the companies are expected to make the investment within a few days.

Soon after the Facebook-Jio deal in April, Reliance launched its grocery delivery product JioMart on WhatsApp. However, months into operation, JioMart has now temporarily suspended its services due to shortage of delivery partners. Most delivery partners have reportedly left the city during the lockdown which has hurt the company’s delivery fulfillment capacity but Reliance Retail has promised retailers to resume operations soon.

Facebook might have already solidified its position in the Indian market but the platform’s battle with Indian government on user traceability seems to be a long one. The information and broadcasting ministry has floated a tender inviting solutions to the fake news epidemic on social media, which can identify key actors behind the disinformation spread and also track their geo-location. Facebook-owned WhatsApp had said last year that enabling traceability of users, will fundamentally change the platform and undermine its end-to-end encryption as users would be afraid to freely express themselves if their private thoughts would forever be linked to their identities. 

Big Tech X Numbers 

7 

The number of new investors Reliance Jio has added to its cap table since April 

$1Bn

Amazon’s commitment to its India business to support SMBs

30%

Vodafone Idea stock shot up on reports of Google’s investment in the telco

Big Tech X Local

As global companies continue to invest in local players, the line between local and global is also blurring. For Indian consumers, there’s hardly any brand more synonymous with digital India than Reliance Jio. But with the company’s growing investor list and a global IPO plan; how do you define a local company?

Last month, PM Modi urged Indians to get ‘Vocal For Local’ in a bid to create a self-reliant India and assert influence on the global economy. The debate of protectionism vs healthy global competition has once again been revived in the aftermath of the Covid-led slowdown-turned-recession.

Startups and businesses say the government needs to clarify what is local in the context of technology products and startup services to prevent any public backlash. Like Nestle India CMD Suresh Narayanan said, “We have been here for 108 years and 99.7% of Nestle India employees are Indians. We hope there will be clarifications on the matter soon.” 

But clarity is at a premium these days. Whether it is about the way back from Covid-19 or the question of whether India can indeed get the pandemic under control, or indeed about how long before India’s biggest cities come out of hibernation. Of course, in the meantime, you can count on The Outline to make sense of the new world order. 

Logging Off,

Yatti Soni

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