Last week, Facebook announced a $5.7-billion investment for a 9.9 per cent stake in Jio Platforms, an entity that owns Jio’s mobile service, the broadband internet service and a slew of apps and products, the largest being the JioSaavn music app.

Context: Jio is India’s largest mobile telco with 388 million subscribers; it reached market dominance in the short span of 3+ years and has reshaped the Indian digital sphere with its super low data fee. For Facebook (or FB), India is its biggest market for both Facebook.com + mobile app (~250 million Monthly Active Users or MAUs) and Whatsapp (~400m MAUs).

The one strong hint that emerged from the press releases and sound bytes, was over commerce, specifically the upcoming Jiomart venture that Reliance/Jio has been working on. A Morgan Stanley announcement document that I got access to – unfortunately, it is marked ‘Not for Retail Distribution’ – says that consumers will be able to use Whatsapp to access and transact (and pay to) the nearest kiranas (local mom and pop grocery stores; ~12m of them in India) or local businesses who can then supply products and services to their homes.

How would this partnership work?

Here is how the partnership could play out in supporting Reliance’s commerce initiatives. Please note that no specifics have been announced, and these are possible ideas about how they could work together on commerce

  • Whatsapp business has features such as a catalogue, automated replies (and of course payments) which would be of great value to kirana stores / small businesses that are part of the Jiomart network.
  • Consumers will be able to use Jio app to source supplies from the nearest kirana stores, accessing the catalogue possibly via a Whatsapp API, and then transact and pay – the Jio app could even fulfill the transaction using Whatsapp’s butter-smooth payment feature (which is still not universally active).
  • As the Jiomart platform takes off and increases in scale, there could be interesting possibilities that could emerge – Jio helping the kirana stores source supplies – say by aggregating orders across stores and negotiating with FMCG/CPG companies such as Unilever, P&G, Nestle, ITC etc. Sourcing could be frictionless given that Jiomart has access to ordering data, and is also installing POS (point of sale/billing) machines at the kirana stores. Another could be using Whatsapp/ Whatsapp APIs to group buy like PinDuoDuo, effectively riding on Whatsapp’s social graph. Loyalty points to consumers could be another angle – imagine taking a Rs 1000 advance from consumers as a JioClub charge, equivalent of Amazon Prime. Selling ads is another idea. Clearly lots and lots of ideas here.

There is also been talk about a ‘superapp’ in some of the stories about the partnership – again this isn’t clear. Is Whatsapp the super-app or is it a separate Jio app. We don’t know!

Beyond commerce, there is scope on edtech and digital media as well. We know Jio owns Embibe and has been steadily investing in it. Jio also owns JioSaavn, a leading online music subscription app in India, and has been building up its JioCinema app. Facebook, of course, is the dominant digital media company. Recently it announced an investment in Unacademy, seeing education video and edtech as a key growth segment in the Indian digital sector. So clearly there are additional synergy areas to mine as well.

Deal drivers

There were, of course, key motivators on both sides:-

  • Jio gets access to the most powerful, useful and universal app in the country – effectively Whatsapp is the Indian internet. If they are smart about it, they can leverage WhatsApp’s social graph and use that to quickly drive demand for purchases from kiranas. They can use the battering ram of consumer demand to prise open kiranas and onboard them easily via Whatsapp
  • FB gets access to a carrier partnership. This means access to a whole lot of data – including information about the handset, location, data usage, spending data etc. Their ability to serve ads will also be heightened.
  • In addition, of course, Jio gets cash, which is welcome given they can use this to shave $5.7 billion of their debt, and for FB, it is great to have Reliance as a partner.

Second-order effects of the deal

What happens if Jiomart becomes a monster hit? How would it reshape the Indian e-commerce or kirana landscape? Let us examine the second-order effects of Jiomart’s success on the various constituencies impacted by the deal.

1) Ecommerce + Payment biggies: These include Amazon, Walmart/Flipkart (both e-commerce as well as the #2 mobile payment provider PhonePe), and Google (GooglePay, #1 mobile payment app). For these players, Jiomart’s growth and certainly Whatsapp payments getting approval (which is perhaps a done thing now), will certainly mean a reduction in their present market share. Their strategy teams are clearly working overnight to put together takes/thoughts and mitigation strategies. Yes, the market will grow and perhaps even with a lower share their volumes and revenues might be higher. But the two-horse race will have to now accommodate a third player.

The one sector, which might be relatively safe, for now, is the foodtech space, as delivery is a key moat there, and Reliance will not find it easy to set up a delivery infrastructure that fast.

2) FMCG companies such as HUL, Nestle, ITC: Clearly if Jiomart grows rapidly and uses its newfound heft to aggregate orders and approach the FMCG biggies for better terms, I do see some impact on the margins of these brand owners. This is much the same way they had to adjust down their margins with modern retail and e-commerce. But I don’t see it as a massive impact.

3) Retailtech/kiranatech space: We can dissect the retail tech space into 3 sub-verticals

  • Demand generation and fulfillment: Swiggy Supr, Dunzo etc. helping customers discover and/or source supplies and get it delivered. From Blume’s portfolio Dunzo, LoveLocal play here.
  • Retail ops including retailer enablement + customer engagement: Plan SKUs/space, mine data to source or sell better to consumers. Snapbizz, a Blume portfolio company that sells a POS system falls in this slot. Other examples could be retail analytics player Peel Works though they also help them source supplies. This segment is actually the smallest segment of retail tech, as there is no large only retail ops player (Manthan, Capillary are possibly the biggest though they serve modern or larger format retail than kiranas). Typically it gets bundled with the sourcing deal, which is the next sub-vertical.
  • Sourcing/supplies: This is the biggest and most richly funded part of retail tech – helping these kiranas source supplies. Udaan, Jumbotail, ShopKirana, Peel Works compete here.

The big impact of Jiomart will be on the last category. Jiomart wants to build a massive B2C e-commerce revenue stream, by routing all consumer demand to Kiranas and then using data from the POS machine and app to help them source better. Again, Udaan and Jumbotail are only serving a really small part of this space. There is scope for all of them to grow. Still, the easy growth and headway may end up being much less buoyant and they may have to share that growth with Jiomart.

I don’t see much of an impact on the retail operations category or even the demand generation space, as this isn’t a high volume or large segment yet. It is fundamentally top-up buying/on-demand, at weird hours – like ordering Doritos or Pringles at 11 pm etc. The volumes aren’t super significant but yes, if the kiranas can sort out on-demand delivery like the Mumbai kirana stores, or dark stores emerge to ride on the Jio platform (like cloud kitchen), then you might see the impact here too.

New startup ideas that could emerge from the success of Jiomart

  • Delivery as a service: Kirana stores or small businesses that don’t have their own staff can hire staff for delivery. Shadowfax pioneered this, and Dunzo has offered this as an API to smaller businesses. There is scope for an even more hyperlocal delivery as a service model. These kirana stores could make do with folks without bikes too. They can source these folks by shifts to ensure they keep up with demand peaks.
  • Dark stores: What cloud kitchens were to Swiggy, these are to Jiomart. Essentially a small warehouse or storeroom in a residential area that sells on Jiomart or online, but not to walk-in customers.
  • A competing set of Shopify-type online retail as a service business, helping offline retails sell inventory online via their own or on third-party platforms. It is unlikely Jiomart will have it all to itself. Google clearly is wondering if it is going to miss out and will try and put together a parallel platform. It already has a significant stake in Dunzo, and could try and create a search result with fulfillment via Dunzo or so.

The author is a director at Blume Ventures, an early-stage investment fund. This article has been reproduced on DealStreetAsia with appropriate permissions.