An epic technology war is raging in India, where the biggest U.S. and Chinese tech companies are taking on homegrown players like Reliance Jio and investing billions to grab hundreds of millions of new customers.
India’s explosive growth in internet users is driving the intense competition. The number of internet users hit 743.16 million in March 2020, more than doubling over four years, according to official data. Bain & Company estimates that number will reach 1 billion by 2030, on the back of cheap and ubiquitous mobile data.
Giant U.S. tech companies like Facebook (FB), Amazon (AMZN) and Alphabet (GOOGL) are eying that headroom for growth as internet markets in developed economies slow. Disney (DIS), Walmart (WMT), Netflix (NFLX) and even Berkshire Hathaway (BRKB) also are jumping in the battle for e-commerce, mobile payments and streaming video dominance.
India is all the more attractive to these tech companies since China remains largely blocked off for them. And while Chinese technology companies have also poured billions into India, growing China-India tensions offer a chance for U.S. companies to gain from India’s recent crackdown on Chinese apps like TikTok. But big bets on startups indicate Chinese tech companies are in India long term.
“There’s really no other market of that size globally outside of China,” said Matthew Dreith, portfolio manager of the Wasatch Emerging India Fund (WAINX). “It’s really the access to this huge internet ecosystem emerging in India which is driving the most recent wave of investments.”
High-Stakes Competition In India
The heavy investments underscore the high stakes in the country. Despite its vexing red tape and protectionism, India offers a young and smartphone-obsessed population. It’s now Facebook’s biggest market in the world by number of users. And it’s the second-largest market for Google’s YouTube, behind the United States.
A key entry point for international tech companies in India is Mukesh Ambani. He runs the Reliance Industries empire that spans petroleum, retail and telecom. He is also Asia’s richest man with a net worth of nearly $90 billion, well above Alibaba (BABA) founder Jack Ma’s $54 billion.
Ambani has a reputation as a ruthless mogul, known for undercutting rivals with low prices. His Reliance Jio telecom unit came out of nowhere five years ago to overtake then-market leaders with low data rates and free phones. But he has alienated many ordinary Indians who think there’s no business the company sees and doesn’t want to control.
Keys To The Kingdom: Ambani, Reliance Jio
Analysts say the most attractive part of Ambani’s vast portfolio is Reliance Jio. The company boasts India’s largest mobile telecom network. It’s also the foundation of a buzzy new digital services company called Jio Platforms.
Facebook and Alphabet subsidiary Google bookended a $20.2 billion fundraising spree by Jio Platforms earlier this year, plowing $5.8 billion and $4.5 billion, respectively, into the Indian startup. By July, Jio Platforms had a $58 billion valuation within a year of being formed.
Though each partner has its own reasons for investing, partnering with Reliance Jio is key because it owns the digital highways, says Arvind Singhal, chairman of India-based retail consultancy Technopak Advisors. Reliance Jio boasts 388 million mobile subscribers. Its customers will do more online shopping on their phones in the future, even in small towns and villages.
But Ambani’s sprawling ambitions could make his conglomerate both a rival and a partner to U.S. tech companies in India. Like Walmart and Amazon, Reliance Jio is developing a digital ecosystem across e-commerce, logistics, electronic payments, movie and music streaming, and cloud storage. It even has a videoconferencing service, challenging Google Meet and Zoom Video (ZM).
In fact, Reliance Jio is creating a “superapp” like Tencent‘s (TCEHY) WeChat, says Singhal. Its MyJio app already offers instant messages, while also allowing users to pay bills, listen to music, play games, keep photos in the cloud, read news, access government services and more.
E-Commerce In India: ‘The Biggest Battleground’
India’s e-commerce market grew 25.5% to $30.12 billion in 2019 and will explode to $99 billion by 2024, according to Goldman Sachs estimates from July. It will grow 27% annually over the next five years vs. 19% for the U.S. and 17% for China. India’s online grocery sales will lead the charge, expanding 20-fold over the next five years to $29 billion.
“We expect e-commerce, including grocery, to be the biggest battleground for India internet companies,” said Hiren Dasani, a portfolio manager of the Goldman Sachs Emerging Markets Equity Fund (GEMIX).
With huge scale, lower prices and better product assortment, Amazon and Walmart can take share from “kirana,” or mom-and-pop bodegas that dominate retail in India. Often these stores are hole-in-the-wall businesses selling everything from prepaid mobile data to rice by the kilogram. Many are so small that customers don’t even go inside. Instead, they order from outside, and the shopkeeper picks items off the shelves for them.
But the giant international tech companies face unique challenges. Those include a highly politicized retail sector, layers of entrenched bureaucracy and shoddy infrastructure. And people are accustomed to walking or driving their bikes to do their shopping.
Walmart entered the subcontinent in 2007 but made its big e-commerce move in 2018, when it outbid Amazon for an 80% stake in Flipkart, which is the current e-commerce leader.
But Amazon India, despite losing out on the Flipkart deal, has become a fierce rival, with an almost equal 31% market share.
Global Tech Companies Converge In India E-Commerce
Edward Jones analyst Brian Yarbrough is cautious about Walmart’s $16 billion Flipkart megadeal.
“Walmart is still struggling to get profitable in their e-commerce business in the United States,” he said. “So I just wonder about their ability to ramp up the profitability within India.”
Reliance Jio is also getting in the action. In May, it launched JioMart, an online shopping platform widely seen challenging Walmart and Amazon on the subcontinent.
Walmart also doesn’t dominate all of Indian e-commerce. In the critical online groceries and food sector, Alibaba-backed BigBasket is the leader.
Meanwhile, Alibaba’s Chinese rival Tencent invested in both Flipkart and food delivery app Swiggy. In its latest tranche, Tencent invested $63 million in Flipkart in September, even amid India-China military tensions.
In fact, big Chinese venture capital and tech companies have invested $4 billion in 92 Indian startups, according to a recent report by Gateway House, an India-based foreign policy think tank.
Reliance Jio App And Rivals In Digital Payments
As online shopping takes off, a robust payments system will be key for the Indian market. Payments also will be a crucial tool for gathering data on spending and consumption patterns.
Not surprisingly, global technology players are converging on mobile payments in India. Alphabet’s Google Pay is in India along with newer entrants such as Amazon Pay and Facebook’s WhatsApp Pay.
Walmart, for its part, has pointed to an overlooked benefit in the Flipkart deal, a digital payments subsidiary called PhonePe. And of course, Reliance Jio is in the mix with Jio Pay.
Streaming Video Growth In India
Besides e-commerce and payments, the internet’s explosive growth in India is drawing the big players in streaming video.
Netflix CEO Reed Hastings expects the streaming-video leader’s next 100 million subscribers to come from India, given the “phenomenal” growth of the internet in the four years it has been there.
Disney launched Disney+ in India this year and also views it as a top growth market, with a billion screens up for grabs by 2023.
Disney+ could even have more subscribers than Netflix in the massive Indian market this year, an analyst predicted in February.
The media and entertainment conglomerate also bought Star India as part of its $71 billion acquisition of Fox’s entertainment assets last year. The Mumbai-based media giant has dozens of sports and entertainment channels as well as other assets like Hotstar.
Facebook, Google’s YouTube and Amazon Video are among the other top apps for entertainment in India. The Jio Platform also has a streaming video app as part of its grab bag of internet-based digital services.
Reliance Jio Vs. Global Tech Companies
Analysts are watching how an intricate web of relationships plays out among international tech companies and local partners like Reliance Jio.
Jio may be attractive to international companies due in part to regulations about storing consumer data locally, suggested Yugal Joshi, digital and cloud research lead at the consultancy Everest Group.
“(With Jio) owning that data and this entire 5G rollout when it happens, Google and Facebook would want to be there,” Joshi said.
A decisive factor could be navigating ties with Ambani himself, whose father founded Reliance in 1966. His coziness with Prime Minister Narendra Modi could help Facebook where it has struggled, like WhatsApp payments. India is already the social network’s biggest market by number of users, far ahead of the U.S.
Similarly, partnering with Jio could help Google get low-cost 4G and even 5G Android phones into the hands of the other half of India’s population that remains unconnected to the Internet. Google’s Android operating system already powers nine out of 10 smartphones there.
But Joshi warns the headstrong Ambani will thwart any efforts to shunt him aside as Walmart did when it ousted Flipkart co-founder and CEO Binny Bansal in July. Indeed, the name Ambani is synonymous with his company.
“You can push out Bansals from Flipkart, which Walmart did — you cannot push Mukesh Ambani out of Reliance,” Joshi said.
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