Good Morning Reader
Hope you are reading it in good health. After the 3 months long lockdown now, most of the businesses are back to business. During the lockdown period, most of the industries were shut down and business owners have spent most of the time on planning new strategies.
In the last 3 months, we have witnessed strategical
partnership news of India’s Largest corporate house “Reliance”. In today’s blog, we are going to understand how Reliance’s JIO is in Endgame of telco stack and ambitious plans of Mukesh Ambani.
Let’s start with an example.
Suppose you are the CEO of an electricity company. What do electricity companies do?
It has quite a simple answer - These companies provide electricity to our homes
and offices.
One day you thought for growth
and diversify your business with strategical optional available. So, the first
thought would be why not expand upwards by making switches and lights. It sounds a great plan. Is it not?
But there are perfectly good
reasons why electric companies, despite being a very valuable part of the chain
remains only electric companies. Electricity is a utility, and just because you
supply electricity, that doesn’t mean that you can make light bulbs that
perform better than everyone else on your electricity.
Now apply the same in the telecom industry.
Here companies are supplying Internet (DATA) as valuable as electricity. Because
of tough competition in India’s between telecom giants, Indian consumer enjoying
cheapest data rate per GB in the world.
To understand why do telecom companies,
with all their might and power, mostly remain telecom companies? First, we need
to understand consumer tech stack. Take your mobile as a stack. We can bifurcate
it in 4 layers as follows
1. Product
& Service – Netflix, Paytm, Prime etc
2. Operating
system – Android, iOS
3. Device
– Oneplus, Samsung, Apple
4. Telco-
Airtel, Vodaphone etc
The telco is the last layer of the stack. In this stack being at highest level i.e Product and service such as Instagram,
Facebook, Netflix, Google, Amazon etc. It is easy to make money via subscription
or advertisement at a higher level at stack as it is closer to the customer.
In the stack owning more layers
is more beneficial and it makes sense. For example, being a device manufacturer
company wants to have its own OS or consumer apps. Example: - MI. whereas being
at a higher level of stack google is also have a good share in the device layer.
But Being telcos at the bottom
of the stack it sucks as for companies of the higher layer, it is insignificant
that which telco is providing service to end consumer. For example, Facebook is not bothered at all about whether you are accessing it through BSNL or Airtel.
Teleco companies have also tried
to own share in higher layers of the stack such as airtel owns hike or wynk music
app, or Verizon acquired yahoo. But historically it has not succeeded well.
Now take the reverse case, In
2014 Amazon launched Fire OS and mobile phone. I am sure today you are not even
remembering it. Google has also launched the device in the brand name of Pixel series
which hold very little market share.
Based on it, we can conclude that
there’s never been a successful example of a telco going up the stack and vice a
versa.
Now here the story of JIO starts
when India’s richest men decide the fate of the telcos.
If I offer you uncooked food to
cook and eat or cooked food by India’s renowned chef Sanjeev Kapoor. You will
surely prefer to have a 2nd one. JIO did the same by acquiring some consumer
app such as Savvan Music app, and while choosing major investors such as Facebook,
google. JIO could never hope to build consumer apps like WhatsApp, Instagram
owned by Facebook. Whereas Google has been selected for OS and Device Layer.
There are two more layers in
consumer stack i.e At the top end is Infrastructure and at the bottom is
Technology. JIO went above to the infrastructure layer, to the part which
provides the web service that all consumer app use i.e cloud. Microsoft and
google hold control over 25% of the cloud market.
Jio has also covered the bottom
layer i.e technology via having Qualcomm as an investor. JIO has announced that it
is going to build Indian 5G Infra. And Qualcomm is going to play a major role
in it. Reliance JIO 5G push to be India’s answer to Huawei. VOCAL FOR LOCAL.
Remember the electric company
example earlier? Imagine if that electric company not just built out the light
switches and the lamps, but also defined the industry standard plug points,
manufactured refrigerators AND the milk and eggs that are in the refrigerator.
That’s more or less what Jio has
done.
It remains to be seen how this
will pan out. Jio doesn’t exactly own everything in the stack, but it has
the next best thing—investments from everyone who matters in this stack.
But for the next few years, maybe decades, Jio has changed everything. It has
created a wall around an empire that stretches all the way from the top to the
bottom of the stack, effectively ensuring that you need to pay a hefty tribute
if you want to access these users.
CA Pankaj Sharma
+91 96361 25021
Well explained
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