Updated: Jun 5, 2020
What exactly is the deal between Facebook and Reliance:
Facebook has invested 43,574 crore rupees (5.7 billion dollars) in Reliance Industries Limited and got a share of 9.99% in Reliance JIO. This was treated as a largest FDI(Foreign Direct Investment) deal in India. For the readers who might have not known, Facebook owns the subsidiary of WhatsApp and Instagram. Similarly Reliance Industries Limited owns the full subsidiary of Jio Platform Limited (Reliance Jio) and Reliance Retail Limited(99.99%).
Subsidiary: We generally refer, when a company is being owned & controlled by other company as subsidiaries . When a company holds entire shares of other company, we can also refer it as full subsidiary.
Why This Deal Came Into Picture:
There should be a solid thought process behind this to create a synergy between them. If you see the core functionality of both the companies Facebook has data intelligence in it's hand and Reliance has a solid user base which has penetrated into indian population. Combining these two digital giants will create a powerful effect greater than the sum of their separate effects. Facebook is trying to enter into Indian market since 2016 by introducing Facebook basics. But was put down by government of India due to symptoms of monopoly and non net-nutrality. Remember playing monopoly is almost not allowed in any country for longer periods of time. Similarly on the other hand, Mukesh Ambani in 2019 AGM said that his dream is to make Reliance Industries Limited debt free by 2021. If we see the population statistics in India, among 130 chores 40 crores of subscribers are from JIO. By making all cash deal with Facebook allowed Reliance to pay debts of Reliance Industries Limited.
The user base for both these companies are massive
JIO - 338 million users
Facebook - 328 million users
WhatsApp - 400 million users
Business Model of Each Company:
In the latest corporate filing, jio has mentioned they have an average revenue of 120/- from each customer. Similarly Facebook earns 85-90% of revenue through advertisements. There are two types of advertisements that Facebook sells:
Self Service Advertisements: To promote/recognize individual pages on Facebook.
Target Advertisements: As mentioned earlier, Facebook has data intelligence. The neural engines adapt to your behavior and send relevant ads to your pop-up.
What are the advantages for each companies:
With the recent analysis, Facebook will enter into transaction revenues. What does transaction revenues mean? Let's say you've created a website to sell your products online, how do you accept payments...........through payment gateway. Similar to PayU which charges 2% from the vendor, Facebook would also like to provide such payment gateway using preexisting user base of reliance in India. But how does it benefit Reliance? if you see Jio is not the one that Reliance has, it has Reliance Market, Reliance digital, Reliance gas etc. Now it would like to provide an interface to local grocery store owners in India to accept order online by using Facebook gateway through WhatsApp and other applications.
Looking at this model might remind you about V-CHAT, which is used in china. All the Business man can list their products and customer can order the product through chat and compare them with multiple sellers for best price in the same application. Similarly WhatsApp might use whatsapp pay as a payment gateway..
It might lead to non net-neutrality, It will not give absolute equality for all websites over the internet.
It might allow other big companies to collaborate to tackle Facebook and Reliance. For example it can be Amazon teaming with Airtel......
Right now with the SIBI rules, Facebook will not be able to sell it's shares of Reliance till the lock-in-period is over. Right now the lock-in-period for Facebook is 1 year.
With the above statement, we might able to see Reliance JIO IPO in future.