Decoding Facebook and Jio deal

Last Updated on Apr 28, 2020 by Aradhana Gotur

At the core of the Facebook and Reliance deal is a well-planned business strategy called the network effect. This allows both Facebook and Reliance to leverage each other’s business advantage. Says Mukesh Ambani, Chairman of Reliance Industries Limited (RIL), that India is currently in the midst of a remarkable digital transformation. This explains why Facebook’s investment in the telecom-to-oil conglomerate couldn’t have come at a better time.

While talks about Facebook Inc and Reliance Industries Limited joining hands were going on for a while now, Zuckerberg took to the media and announced on Wed the 22^nd Apr 2020 that Facebook will invest Rs 43,574 crore in Reliance Jio. The news, which cheered investors, sent the stock further north so much so that Reliance Industries Limited hit the upper-circuit on stock exchanges on Wed.

The Facebook and Reliance deal is the largest FDI (foreign direct investment) in technology in India and comes bearing many fruits. In this article, we will look at what this deal means to America’s social media giant, India’s telecom giant and our country.

What does the deal offer Facebook?

While Facebook has the largest subscriber base in India, Jio Platforms have 388 million users across the country. This means the Rs 43,574 crore-worth Facebook-Jio deal would allow Facebook, the world’s largest social media giant, to expand its footprint in one of its largest markets India. Besides, the deal will also make Facebook the largest minority stakeholder in RIL by giving it a 9.99% stake in the telecom company.

Furthermore, the deal would also help Facebook—whose activities and proposals have been under strict scrutiny in India (recall Free Basics of 2015)—glide through regulatory requirements with lesser stress. That is to say, you may know that Facebook plans to launch its very own crypto called Libra and a digital wallet known as Calibra across the world.

Now, Calibra is a platform through which users (individuals and merchants) can transact using Libra via WhatsApp and other apps. Notably, over 400 million Indians use WhatsApp. Partnering with Ambani, a regional business tycoon, would put Zuckerberg-led Facebook in a better place to get regulatory clearances and allow it to expand its market reach.

What will the deal offer Reliance Jio?

Post Facebook’s investment in the Jio Platforms, the Ambani-led telecom would become India’s 5th largest listed company in terms of market capitalization. Further, at a predetermined conversion rate of Rs 70 per USD, Jio’s valuation would shoot to a whopping Rs 4.6 lakh crore!

That apart, the Facebook and Reliance deal would also help RIL’s JioMart project that aims at helping small businesses in India. JioMart, in association with WhatsApp, will connect customers with businesses including kirana shopowners and facilitate seamless purchase and delivery of products. It is not hard to imagine how this would change the way India shops for grocery; and certainly not difficult to understand the role that the deal would play in helping Jio achieve its objective.

Finally, the Facebook and Reliance deal would also help RIL in getting debt-free by Mar 2021. So much for all the discounted tariffs that Jio had offered initially. Seems like Jio’s efforts would pay off soon.

How will India benefit from the Facebook and Reliance deal?

Apart from the individual companies, India, as a country would also benefit from this deal in two ways:

First, it would equip the country to realise two goals of Digital India mission; that is, it would let citizens experience ‘Ease of Living’ and allow businesses to benefit from ‘Ease of Doing Business’
Second, the Facebook and Reliance deal would play a critical role in India’s speedy recovery after coronavirus’s pandemic by empowering small businesses

Of course, Facebook and Reliance’s partnership is strategic and bodes well for both the entities—a good route for Facebook to penetrate deeper into the Indian market and a great way for Reliance to pay off debt. But we cannot overlook the sea of opportunities that this partnership would gift to the nation. Let’s wait and watch what unravels in the future.

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Aradhana Gotur

Senior Content Writer at Tickertape

Aradhana Gotur is a Content Writer with 4 years of experience in personal finance, stock markets, and lifestyle areas. Having recognised the power of words, she constantly works on using them to enhance financial awareness among the masses and meet business objectives. One of her greatest strengths is breaking complex concepts in an easy-to-understand way.

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