Why the biggest tech companies are investing in India’s Jio

For years, India has been referred to as the world’s next tech hub. But so far the country has struggled to make this a reality. Its IT sector is beleaguered by ageing infrastructure, foreign companies dominate its tech industry and its workforce lack the digital skills needed to help build world-class start-ups.

This may be about to change, thanks to the arrival of Jio. Jio is the telecoms and internet unit of the Indian conglomerate, Reliance, owned by billionaire Mukesh Ambani. In April, Reliance announced that Facebook would pay almost $6bn for 9.9 percent of the business. This prompted a deluge of queries from other large companies, including Google, which in July paid $4.5bn for a 7.7 percent stake in the company.

It’s the first time an Indian firm has attracted this level of attention from some of the most prolific companies and investors. The interest the business has garnered on the world stage shows that India’s technology scene now stands at a key inflection point.

Untapped growth
On a visit to the country in January 2020, Amazon CEO Jeff Bezos said that “the 21^st century is going to be the Indian century.” While digital markets in Europe, the US, China and Japan are increasingly saturated, India is on the verge of huge digital growth.

“Smartphone penetration in India is still low compared to other big economies. This means that hundreds of millions of new users will become part of the digital economy in the coming years,” said Hanish Bhatia, Senior Analyst of Devices and Ecosystems at Counterpoint Research. It is set to have 2.1 billion connected devices by 2023, up from 1.5 billion in 2018, according to Cisco.

The coronavirus pandemic is only hastening the country’s transition to a digital economy. The Reserve Bank of India has found that India is now recording around 100 million digital transactions a day, five times the number in 2016.

For tech platforms such as Facebook – which has seen audience growth begin to plateau in the US – the rapidly digitising country represents a huge opportunity. Google has launched a fund to invest $10bn in Indian digital businesses over the coming years.

“Facebook and Google have been taking an interest in India for some time now. The major reason is demographic and to do with the size of the population. India, on paper at least, is the largest integrated market in the world after China,” said Jaideep Prabhu, the Jawaharlal Nehru professor of business and enterprise at the Judge Business School at the University of Cambridge. “But unlike in China, where the government and the economy have their own ambitions for their home-grown digital giants and have been suspicious of foreign firms like Facebook and Google, the Indian economy is in some ways more open.”

With tensions between the US and China continuing to rise, India looks increasingly attractive as the next up-and-coming market for US companies to invest in. And Jio presents itself as an obvious entry point for this market.

The next tech giant
Jio is India’s leading mobile phone carrier, equipped with a 4G network that covers most of India. But it is much more than just a telecoms company. “Jio has enabled a billion users to use internet banking, digital wallets, online streaming, ecommerce, eLearning, gaming and much more,” said Bhatia. “It’s created an online marketplace of consumers which has been a big boost for the app economy. It has further opened doors for various tech start-ups which are now trying to cater to various consumer needs which were never thought of before.” As KKR’s co-founder Henry Kravis said when announcing his investment in the business: “Few companies have the potential to transform a country’s digital ecosystem in the way that Jio Platforms is doing in India.”

Aggressive pricing and close scrutiny of US tech rivals have helped the company get to where it is today. Reuters reported seeing documents in which a Jio team was tasked with creating a set-top box “similar to Apple TV”. However, this product would cost around $110, compared to Apple TV, which sells for approximately double that in India.

Another element key to the company’s success, Bhatia argues, is it deep integration in India’s communications sector. “Most telecommunication companies control only a portion of the connectivity value chain. Jio is omnipresent across all of them. It owns the digital ecosystem right from the network, devices, apps, retail, cloud as well as analytics,” he told The New Economy.

The person who stands to benefit the most from Jio’s growing influence within India’s economy is Ambani, Reliance’s CEO and currently the sixth-richest man in the world. He already dominates much of Indian industry. As a well as telecoms unit, Reliance has a brick-and-mortar retailer, an oil complex and a news network. Ambani has said he hopes Reliance can one day become an “everything company” – an ambition that looks more and more within his grasp.

Navigating India’s digital economy
The world’s largest tech companies first turned their attention to India some years ago. Google, for instance, began operations in the country in 2004. Now they are starting to reap the rewards.

“India has about 290 million Facebook users, more probably than any other country in the world,” said Prabhu. “Add to that another 200 million or so on WhatsApp and you can see why India is important to Mark Zuckerberg. Google has also been trying for some time now to reach India’s vast rural population through the internet with its services. For instance, the Google Loon project was focused on using balloons to bring the internet to the countryside. And Google also offers free wifi in Indian train stations where poor, young customers go online on their phones.”

But getting access to India’s market isn’t without its challenges. For example, Facebook has come up against many regulatory hurdles in the country while trying to monetise its user base there. Regulators obstructed its attempts to launch an internet provider called Free Basics in 2014 and the company hasn’t yet been able to launch payments on WhatsApp in the country.

Jio could help investors navigate the country’s complex regulatory landscape. And with over 400 million subscribers, it already has unparalleled exposure in this market. “It has the scale, the deep pockets, the insider connections and local knowledge to success in digital commerce in India,” said Prabhu.

Jio has a vital role to play in advancing India’s digital economy, having brought millions of Indians online for the first time through the provision of very affordable 4G data. However, its cheap mobile packages have come at a heavy cost and today the company has a net debt of almost $10bn. The flurry of investment, therefore, could not have come at a better time for the tech company. Meanwhile – for Facebook, Google and Amazon – this presents a crucial opportunity to establish their place inside the world’s fastest growing digital market. The question is whether Jio can deliver what they hope.