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The month of April of the
year 2020 is just beyond imagination. There is nothing more we can expect. All
of us have gone through the lowest of the Indian economy as well as that of the world’s. Right from the Sensex touching its lowest point, futures of Crude oil
came below zero, due to a high decrease in demand for oil due to the Lockdown.
Amidst all this, we came
across news which caught the attention not only at the national level but also
at the global level. On 22nd April 2020, Reliance Industries and Facebook
have pulled off an unprecedented deal, especially for times when businesses
around them seem to be clutching at straws to survive.
The two most dominant and massive players came together as a result of the deal. 5.7 billion dollars will be invested by Reliance, which is also the largest FDI in Indian Tech Space. This becomes the largest investment of facebook after acquiring Whatsapp.
As a
result of the deal Facebook becomes the largest minority shareholder in Jio, and
also gets a board position. However, the deal signifies that strategic partnerships
are possible even during the time of global crisis.
The impact of the deal is
not limited to the Reliance industries only, but Indian customer is the Focal
point of the deal. From the company’s perspective, RIL share price jumps by
10.30% on 22nd April to Rs 1363.35. The Market capitalization on the
same day rose by Rs 80,700 cores to Rs 864,267 cores.
Transaction
Details:
Investment Amount: Rs 43,574 cores ($5.7 Billion) have been invested by Facebook into Jio Platforms.
Investment Amount: Rs 43,574 cores ($5.7 Billion) have been invested by Facebook into Jio Platforms.
Shareholding: At present Facebook acquires 9.99% stake in Jio platforms.
Valuation
of Jio Segment: Investment by Facebook values Jio segment
at Rs 4.62 Lakh cores i.e. USD 65.95 Billion taking conversion rate @ INR70/$
Rationale
behind the Deal:
For every deal to be
successful there is a strong motive, and mostly the motive is to make sure that
it is a win-win situation for both the parties. The same is the case with
Reliance-Facebook Deal.
Reliance gets
Distribution, Facebook gets commerce: If we talk about RIL, it gets the massive
platform for distribution and on the other hand, it can help Kirana stores to
transact digitally.
Reliance gets
Communication, Facebook gets Payment: Facebook’s Whatsapp Pay which got stuck
in the RBI Regulatory limbo now can have the support of JIO MONEY, On the Other
Hand, JIO Chat which is nothing in comparison to WhatsApp will generate
synergies.
Both Get Data sharing:
Facebook is an ad tech company runs on a massive advertisement. Jio is a telecom
and media company, a reliable publisher where the ad can be placed.
Impact:
The
deal does not only benefit the involved parties. It also creates an overall
impact on the nation
1: Economy: This investment signals how lucrative
tech market Indian economy has. It increases the confidence in the Indian
Economy as it is considered as the largest FDI in the technology sector
2: Choices
and Varieties to the consumer: As
mentioned earlier Indian customer is the focal point of the deal. Imagine a
single digital platform that will probably answer the need for calling,
messaging, booking tickets, buying groceries, creating editing videos, playing
games, making payments and transferring money, catching up on news, and
whatnot.
3: Fundraising/start-ups: It creates a massive digital ecosystem and
also opens the doors for incubation platforms for start-ups. Merger and
Acquisition opportunities might lead to the building of India’s version of
Softbank.
4: Digital
Payments: In the last few years, UPI experiences exponential growth.
Applications like Google Pay, Amazon Pay consider being real contributors. Jio
can also have its Digi money wallet known as “Jio Pay” which will also add to
this growth.
Threats:
Every
deal has its impact, be it negative or positive. Reliance - Facebook deal also
bundled with such possible threats. But this is very nominal as to what it
offers to Indian Market and its consumers.
1: Data
Policy: Both companies have a diverging issue on the collection
of data. If we see WhatsApp it offers end to end encryption of the chats, which
is not the case with reliance. The government regulates the way data is stored
within the country.
2: Monopolization: This is something that directly affects the B2B sector. As we all aware
Facebook and Reliance both are masters in eliminating competitions as well as
competitors. Small businesses and start-ups operating in the same space will be
in fear of being swallowed by big strategic partnerships.
The
deal is not only getting the response in terms of the good market but also
opens the door for many small businesses, start-ups, increase consumer choices,
and proves to be a deal-breaker of the year as on the date. This, in turn,
leads to a higher valuation of Reliance Industries and also proves that no
pandemic is big enough to affect any business for a long duration.
Written
By - Utkarsh Samaiya
Edited
By - Adrija Saha
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