Why India Inc’s biggest play next year will be by Mukesh Ambani, from connectivity, conteent to commerce.
First, he spent $36 billion to get you connected and hooked. Then, he invaded your bedroom. Very soon it will be a grab for your wallet. Ambani’s retail plans, online and offline, for 2019 will be defining India Inc strategy next year. Tighter ecommerce rules that will apply on foreign giants from February 2019 will make this strategy more potent.
Mukesh Ambani gave us the world’s largest mobile data and all-4G network for free voice calls, and rock bottom internet rates to get drunk on
data. We can now talk forever, stream videos, and shop for great bargains, while villagers can avail government schemes and register for benefit payments, download textbooks, access healthcare and education and transfer money riding along the highway of 150,000 miles of hi-tech fibre optic cable that’s enough to circumnavigate Earth six times. In its first year itself, Jio transmitted more data than any carrier ever worldwide, catapulting India to cross the US in the number of apps downloaded from the Google Play store.
Monthly data traffic per user has jumped 570% since Jio’s launch in September 2016, according to Morgan Stanley, as 18,000 cities and 20,000 villages got connected to the network.
Yet, connectivity is just the first piece of his quadruple play of connectivity, carriage, content and commerce. Together, the 4Cs form the foundation of his career’s most ambitious corporate wager. He even bought two of the largest cable companies, Hathaway and Den Networks, to complement JioGigaFibre and take his telecom architecture indoors to grab 80% of data consumption that typically happens within
This completed Ambani’s carriage plans, allowing him to add services on top, such as bundling optical fibre-based broadband with smart home solutions, or enterprise Cloud offerings for businesses. Go binge. But along with ubiquity, you need great content. So Jio simultaneously started shopping, scooping up media companies, sports franchises, online music and video streaming service startups.
With consumers gorging on 240 crore gigabytes of content every month, the Jio juggernaut is steamrolling anything coming its way. But even then, the economics looks dire, as the average revenue per user is now down to sub-$2 a month. Even an ambitious 30% operating margin for a 1 billion-plus market translates to $8 billion gross earnings before interest, tax, depreciation and amortisation (EBITDA).
Doubling its revenue market share to a high 40% would only lead to a $3 billion EBITDA pie for Jio, after deploying 12 times more in investments. Mukesh Ambani would need a silver bullet.
That’s where retail and financial services come in. Now that Jio has connected the masses — getting 250 million of them and counting firmly in its ecosystem — Ambani will start commerce on his platform to make money and recoup the massive investment, the largest the country has ever seen, to sell fashion and food, electronics and financial services, and even advertising. Once the freebie seduction ends, the highend broadband connections will also come at a price.
Don’t be surprised then, if Jio and Reliance Retail — also the largest organised player in India — blends into one, or dovetails its strategy to create an omni-channel experience by enabling seamless engagement between the online and offline worlds.
Reliance sees its hybrid commerce platform as one of its biggest engines for growth, pitting it against ecommerce giants like Amazon or retailers like Walmart. By integrating the physical and digital marketplaces, Ambani is dreaming of a ‘Bharat-India Jodo’ enterprise that will provide high-speed cabled internet all over India to connect the 3 crore small merchants and shopkeepers who provide the last-mile physical market connectivity.
Ambani, a late re-entrant in the telecom business, has opened up the market to global tech and retailing titans as diverse as Alphabet, Facebook, Netflix and Amazon. Now, he will be their biggest threat. The way he assailed voice telephony — Reliance Jio Infocomm upended the entire
telecom sector’s profitability within two years with its brutal price wars. He is now taking the battle straight to Jeff Bezos, the world’s richest individual and founder of Amazon.
Consider the opportunity and the eventual prize. Bain & Co says India’s internet penetration is only 28% versus 88% of the US. Its $33 billion ecommerce market has trebled in three years, but it’s still just 3% of the overall retail market. And with GoI’s ecommerce regulations announcement, India’s richest man will have a good start.
GoI has said these are not new rules but clarification and tightening of existing rules. Amazon and the Walmart-owned Flipkart Group won’t be able to sell products from companies in which they have an equity interest. These companies are also barred from entering into exclusive agreements with sellers, or from offering deep discounts and cashbacks.
Moreover, if a vendor gets a minimum 25% of its purchases from a marketplace, it will be deemed as inventory. Amazon, in any case, is already hamstrung with existing rules disallowing it to hold ecommerce inventory locally. This prevents the retail giant from leveraging its globally renowned logistics prowess. Instead, tightened rules, some of which has been dubbed by experts as anti-consumer, will make Amazon look for other ways to keep the sales clock ticking.
Reliance Retail can invest in supply chain and logistics, while fusing a growing online presence in tandem with siblings like Jio. In 2019, this can be the big play for Mukesh Ambani. Cheap data and growing penetration of smarter handsets have opened up a Pandora’s Box for commerce and
payments in a country poised to be a $1 trillion digital economy by 2025, as estimated by Mckinsey. Almost at the same time, Ambani has become vocal in the raging debate on data localisation. He clearly states that ‘data colonisation’ is as bad as one India had to suffer prior to 1947. He wants India’s data to be controlled and owned by Indians and Indians alone.
Remember, Aadhaar’s database helped Jio mop up a lion’s share of its users within such a short span of time. With GoI tightening rules for global e-tailers, all homegrown players in theory can make a better play for the digital commerce market. Ambani’s big moves, given his scale advantage, can be 2019’s defining corporate play.
Jio has become profitable. But the real upside will be only when commerce and payments ride seamlessly on the telecom platform. That’s when investors will get the real bang for their buck. Till then, the price war in telecom will continue to be a race to the bottom. Rivals will keep breaking their backs — or simply fold up like the Tatas, Telenor or Anil Ambani’s Reliance Communications — till Mukesh Ambani corners half the sector’s EBITDA for himself. Growth will also largely be exponential, not linear. So for ‘India’s Verizon’, it only makes sense to become Verizon plus Amazon. The only problem will be a policy change. But such a scenario seems unlikely for the moment.
In his last AGM speech, Ambani had said he is determined to ‘connect everyone and everything, everywhere’. His new commerce platform, he added, will ‘promote shared prosperity’. 2019 is the year he will start working on that promise