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Silicon Valley gave Asia’s richest man billions, but things aren’t all going to plan

by GFeed News Desk
June 24, 2021
0
After his extradition to the United States was approved, John McAfee was found dead in a Spanish prison

Last year, Google and Facebook put more than $10 billion into Asia’s richest man’s plan to connect hundreds of millions of Indians to the internet.

The investments quickly established Mukesh Ambani, the billionaire chairman of the sprawling Indian conglomerate Reliance Industries, as a gatekeeper for Silicon Valley in India — but they also raised the stakes for him to get the companies a foothold in the world’s fastest-growing internet market.

Ambani intends to connect millions of small businesses in India to his e-commerce venture, JioMart, through Facebook’s (FB) messaging service, WhatsApp. Meanwhile, the partnership with Google (GOOGL) aims to jointly develop a low-cost 5G smartphone.

At its annual shareholder meeting on Thursday, Reliance, whose major businesses include energy and retail in addition to technology, is expected to provide an update on those initiatives, as well as an ambitious plan to build out India’s 5G network.

However, as India continues to grapple with the effects of the coronavirus pandemic, including a slump in the economy, Jio’s plans may face more challenges than its politically connected billionaire owner is accustomed to.

Even in normal circumstances, selling smartphones in India can be difficult. According to the latest World Bank data, the average Indian earns around $2,000 per year, making expensive smartphones out of reach for the majority of the population. For years, Apple has struggled to sell iPhones in China, and Samsung is losing ground to Chinese brands like Xiaomi, Oppo, and Vivo.

The global pandemic, however, exacerbated the problem by overloading supply chains and causing shortages of critical components. As a result, creating a low-cost smartphone has become more challenging.

“Supply constraints are impacting almost everyone in the industry, but the impact on smaller, local players is even more, as they are not really the top priority for the component makers,” said Kiranjeet Kaur, an analyst at research firm IDC. While Jio does have enormous resources at its disposal, it is still relatively new to the smartphone game, “and the focus on the low end makes it even more difficult” to procure parts, she added.

According to a recent Bloomberg report, Jio has had to significantly reduce its smartphone sales targets due to shortages and rising prices.

Delays in the smartphone’s release could jeopardize Google’s efforts to capture India’s internet user base, which currently stands at over 700 million and is expected to grow rapidly in the coming years.

A Jio spokesperson declined to comment on the company’s plans for the smartphone’s release and sales, but did acknowledge that the pandemic could delay its launch. Requests for comment from Google were not returned.

According to Tarun Pathak, research director for mobile devices at Counterpoint Research, India’s prolonged Covid outbreak and the resulting economic crash has hampered consumers’ ability to upgrade their devices. As a result, the country’s smartphone market is becoming even more price sensitive at a time when smartphone manufacturing is becoming more expensive.

“That is where we see challenges for someone like Jio. … Every cent matters,” he said.

Facebook’s $5.7 billion investment in Jio, one of the most significant in the company’s history, is a marriage of convenience between two services that form the internet’s backbone in India.

Jio and WhatsApp, which is owned by Facebook, each have over 400 million users in India, and their collaboration is part of an effort to unseat Amazon and Walmart from the top of the country’s online retail market.

Reliance’s e-commerce platform, JioMart, aims to achieve this by bringing millions of India’s mom-and-pop shops online. JioMart, which launched months before Facebook’s big investment, now has a presence in over 200 Indian cities.

Despite its recent growth, analysts say JioMart is having difficulty convincing local retailers to join. According to a report from Indian brokerage Kotak Securities earlier this year, its direct-to-consumer delivery service is “picking up at a slow pace amid apprehensions among retailers”.

“Getting independent merchants on board has been a challenge since many of [them] are wary of sharing their business information, and many are still not clear about the value-proposition from their perspective,” said Arvind Singhal, chairman of Indian consulting firm Technopak.

WhatsApp is having its own problems in India. The messaging service is suing the Indian government over new rules that would force it to break encryption after a long wait for regulatory approval for its payments system in the country. The rules, as well as the lawsuit that followed, have cast a pall over WhatsApp in its most important market.

The battle between Ambani and Amazon has reached the courts, with Amazon challenging Reliance’s recent acquisition of rival retailer Future Group. The legal battle is expected to drag on for months, slowing JioMart’s growth prospects even further.

“It is probably true that the progress in executing this vision has not been as per the original expectation of Reliance, but then it would have been a miracle had everything gone as per the plan,” Singhal said. “Reliance is known to be very quick in adapting [and] course-correcting, and hence it is still very likely that JioMart would achieve its original objectives.”

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