Jio Platforms: India's giant in waiting
From Silver Lake to Vista Equity Partners to Facebook, international investors are flocking to Reliance Industries' internet and telecom platform. But can the business deliver on its undoubted potential?
Two months ago, AVCJ looked in detail at “the Jio effect.” Reliance Industries had established itself as India’s leading mobile carrier. Its latest initiative was the creation of Jio Platforms as a holding company for Jio Infocomm - which controls its telecom, broadband internet, and over-the-top streaming services - and a series of apps. The objective was simple: leverage the 388 million-strong mobile subscriber base to build a dominant app ecosystem.
Reliance Industries had another piece of the puzzle already in place, with Reliance Retail – India’s top retailer – poised to offer omnichannel opportunities.
The ecosystem needed to be populated, so Reliance Industries embarked on a shopping spree. It started with music-streaming player Saavn and has since built up a portfolio that also covers video content, payments, messaging, news, and cloud-based enterprise services. Reliance Strategic Business Ventures and Reliance Investment Holdings lead most of the deals. For start-ups seeking traction with consumers, alignment with Reliance Industries represents a powerful proposition, but they must cede control to a corporate giant with multiple, sometimes competing, interests.
With Reliance Industries carrying substantial debts and Jio Platforms keen to broaden its scope, it seemed to be case of when, not if, third-party capital was introduced. “Even a 10% stake sale could bring in about $7 billion,” Vikash Kumar Jain, an investment analyst at CLSA, said at the time.
Much has changed in the past three weeks. First, Facebook paid $5.7 billion for 9.9% of Jio Platforms as part of a broader partnership. This includes working to further the reach of JioMart, an app through which customers can order products listed in Reliance Retail’s inventory and obtain them from local neighborhood stores. It shouldn’t be long before orders can be placed using Facebook’s WhatsApp messaging service.
The investment activity didn’t stop there. Silver Lake announced it would commit $750 million to Jio Platforms and then Vista Equity Partners agreed to pay $1.5 billion for a 2.34% stake. The latter deal is said to value the target unit at $65 billion, roughly in line with Jain’s earlier projection. (And at the end of last week, General Atlantic came on board as well.)
The significance of the PE involvement shouldn’t be underplayed. Vista and Silver Lake primarily operate in their home market, the US, and prefer control transactions. AVCJ has records of just one Vista deal in Asia – a $4.3 billion privatization of US-listed Tibco Software. It is debatable to what extent the company, which was founded by an Indian-born entrepreneur, could be considered Indian. Silver Lake ventures further afield but the firm is very selective about minority investments in Asia. China’s Alibaba Group, Ant Financial, Didi Chuxing, and SenseTime all make the cut.
“Alibaba was at the far end of an extreme for us format-wise,” Kenneth Hao, a managing partner at Silver Lake, said in 2014, months after the Chinese company listed in the US at a valuation of $168 billion. “I remember one of my colleagues on the investment committee saying, ‘So your base case is an IPO with a $100 billion valuation. How many times has that happened before?’ At the time, the answer was zero. It seems quite conservative now.”
Can Jio Platforms do for Silver Lake in India what Alibaba did for it in China? The company certainly seems keen to emulate its Chinese peers by targeting key consumer touchpoints such as e-commerce, payments, entertainment, and social networking. However, Jio Platforms doesn’t play in a walled garden with the Indian government minding the gate. Foreign strategic players are a threat. Moreover, at present Saavn – now known as JioSaavn – is the company’s only truly successful app.
In short, Jio Platforms has yet to demonstrate its value proposition, and local venture capital investors openly question whether this will ever happen. Other obstacles include monetizing a Jio mobile user base that is price-sensitive and the integration challenges that inevitably come when a large corporate brings together a collection of innovative businesses in the hope they can become more than the sum of their parts. Few would dispute that Jio Platforms is sitting on a consumer internet goldmine, but it remains to be seen whether the company can deliver on this potential.
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