The recently concluded Reliance AGM has been in the headlines for the last few days due to Reliance’s footprint and impact on the industry. While Jio has been largely responsible in the last 3 years for growing the overall internet user base for the country, Reliance plans to grow its impact from mobile broadband through four growth engines:
- Home Broadband
- Enterprise Broadband
- Broadband for Small and Medium Businesses
- Internet of Things (or IoT)
Within the internet ecosystem, we have tried to look at how this could play out and where the maximum impact would lie
1. OTT players get a lot more eyeballs, but monetization does not increase at the same pace
India has 260 Mn[1] monetizable internet users (out of 530 Mn total internet users). Given that Reliance aims to reach 20 Mn residences with JioFibre Plan, that roughly translates to 70 Mn[2] people. Given that Reliance aims to tap only 1600 towns, all of these are likely sub-set of 260 Mn. In this scenario, Jio will control the data consumption for 25-30% of the monetizable internet user base.
Majority of subscription driven players have a paid user base of 1-20 Mn [3], so this immediately gives them access to a significantly larger audience, not just on mobile but across devices like TV. Amazon, Google have also been trying to create a similar ecosystem (through Fire Stick and Chromec Cast) but the key difference is that while these apps let you choose the subscriptions that you want to buy, Reliance plans to come with a bundled offering.
In the event that Reliance is able to control 25-30% of entire target audience, it will have a significant pricing power as well as ability to choose which OTT platforms it wants to partner with. This may lead to OTT players providing bundled subscriptions at very low pricing to increase reach, further leading to lower monetization.
2. Digital B2B businesses get a strong boost across the board
There are 70Mn+[4] non-agricultural MSMEs in India which account GDP. Only 2%[5] of these MSMEs are digitally “engaged” (advertising, listing or selling online) which translates to ~1.5 Mn businesses. Reliance plans to offer bundled productivity, automation and connectivity tools to MSMEs are 1/10th of the current cost, and aims to add another 2-5 Mn MSMEs to the funnel.
- Growth in B2B Digital advertising: The $ 100 Mn+ industry[6] is growing by annually. Growing addressable market for these services can lead to a faster growth for the industry
- More suppliers for B2B e-tailing: B2B e-tailers find it difficult to bring smaller suppliers online due to lack of digital maturity. A larger funnel can help them build a stronger marketplace[1]
- Mixed bag for SaaS products: SaaS companies in India have mostly focused on global markets in the past. But increasingly, there are new-age SaaS companies which are targeting the Indian SMEs. While faster and cheaper internet for MSMEs will help bring a larger number of MSMEs online, SaaS companies will have to compete with Reliance for some of these services
3. New Commerce, Cloud and Infrastructure services- Taking a leaf from Alibaba’s playbook?
In some of the areas, the announcements were eerily similar to Jack Ma’s “Alibaba Vision” speech in 2016 where he coined the phrase ‘New Retail’ (Reliance actually launched ‘New Commerce’ in November last year) and emphasized on building strong cloud and data infrastructure capabilities. In last quarter of FY18, Alibaba reported that they had digitised 1 million+ mom-and-pop stores, with USD 3.2 Bn annualized revenue run-rate; and cloud computing business at USD 2.4 Bn run rate
But will Reliance be able to replicate this in India?
Within the unorganized segment, except the tier-1 retailers, the adoption of MPoS machines has been a challenge. While retailers are still comfortable using these for payments and bill generation, compliance on inventory management for even leading solutions has been low. If we look at another e-commerce sector like Food-tech, prospect of additional income from platforms has made even the smallest restaurants bring their menus online (of course, the variety of SKUs and constant changes in inventory makes the problem more complex in retail). If Reliance is able to help these retailers generate additional income through online orders and other services, it is possible to bring these retailers in the e-tailing ecosystem, given that internet and smartphone access barriers are coming down.
Taking on global giants in cloud computing and infrastructure, even with the Microsoft Azure partnership might not be easy given that the largest competitors (Amazon, Google) have already been developing India-specific solutions for at-least a decade and have a strong foothold in the market.
References:
[1] “Vernacular is NOW, not the future” RedSeer report – (https://bit.ly/2TGUSCo)
[2] India average HH= 4.8 people basis 2011 census; Assumption is that this will be lower in larger towns (~3.5) compared to small towns and rural areas
[3] RedSeer estimates
[4] Basis NSS 73rd round survey, 2015-16 and historical CAGR
[5] ITOPS survey, Kantar IMRB
[6] Indiamart Draft Red Herring Prospectus, June 29, 2018