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Technology l Analysis l Strategy

In the previous essay, I talked about that Facebook’s primary revenue source is from online ads.

Well, there is no easy way to say that, but 98% of Facebook revenue is coming from online ads. So it’s not a big surprise that they are one of the most affected companies by both surges of usage as people are using Facebook, Instagram, Whatsapp more heavily, and decrease of marketing spend on ads on its platform. So ads for Facebook are basically a matter of existence.

So It is smart – or a strategic necessity as I will explain in a minute – that they are trying to find different revenue streams.

In the last Facebook’s earnings call, Mark Zuckerberg said:

I have always believed that in times of economic downturn, the right thing to do is to keep investing in building the future, and I believe this for a few reasons. First, when the world changes quickly, people have new needs and that means that there are more new segments to build. Second, since many big companies will pull back on their investments, there are a lot of things that wouldn’t otherwise get built, but that we can help deliver.[..] we’re planning to hire at least 10,000 more people in product and engineering roles this year, so we can continue building and making progress.

Mark Zuckerberg – Facebook earnings call 2020 Q1

Afterward, Facebook invested $5.7 billion for a 9.99% stake in India’s Reliance Jio Platforms as the largest single investment in Facebook’s history.

Jio Platforms is connecting more than 388 million people in India to the internet. And if we look at the following chart. The number of internet India is so high in comparison with the US and EU.

Internet Users in US vs. EU vs. India

That is not the first try from Facebook to enter the Indian market. They saw India as the future for growth since 2013. But their attempts failed in 2016 after regulation blockers over Free Internet Initiative and providing payment solution for WhatsApp.

This time they tried a different approach by partnering with Reliance Jio, the largest telecom provider in India, To avoid getting in conflict with the Indian government direction to empower the Indian companies.

This investment has three main strategic advantages:

1- Facebook + Instagram vs. TikTok

In recent years, TikTok, the app owned by the Chinese giant ByteDance has got a market share in India that all the US Tech companies – including Facebook – couldn’t acquire.

In recent years, ByteDance’s TikTok has won users that all of these companies have struggled to reach. TikTok has amassed more than 250 million users in India (as of last year), and the company says it is on track to add another 100 million this year.

TechCrunch

But not just in India. Tiktok already got a significant market share in many different countries as a social platform. And I think Facebook bearly started to take any action against the viral usage of Tiktok, especially between teenagers.

That’s the first reason which serves – still – into increasing Ads revenue stream. But in general, Facebook couldn’t monetize the increasing users’ usage in Asia compared to users in the US and Europe.

Facebook’s average revenue per user 2019 Q4

So that leads us to the second strategic advantage.

2- E-commerce via WhatsApp and an opportunity for a SuperApp

In one of the future essays, I want to dig deeper into the story of WeChat, the Chinese SuperApp. And this related to today’s essay since Facebook has an opportunity to transfer WhatsApp into a similar user experience in the Indian market. The same try that Careem – now owned by Uber – is seeking in the Middle East. See the market pattern?

Reliance Jio also wants to take on Amazon in e-commerce in India, but to take on Amazon, they can’t play like Amazon! As Brad Pitt stated in Moneyball in a different context about the Yankees.

Moneyball

WhatsApp is already popular in India, but as I mentioned before, Facebook couldn’t pass the regulation to add payment service to WhatsApp to be able to monetize it. But after the partnership, Facebook could enter the e-commerce market in India much more comfortably. Either with more government-friendly WhatsApp solution or via JioMart service. As Mukesh Ambani (Reliance Jio’s largest shareholder) referred to in the deal announcement:

Ambani added that JioMart and WhatsApp will enable 30 million neighborhood stores (kirana) to transact digitally “in the near future.” WhatsApp has been working with the Indian government for more than two years to expand its payments service in India — but the project remains stuck in regulatory hurdles.

Mukesh Ambani

Facebook introduced WhatsApp for business a few months ago. And as they described, the main feature in WhatsApp blog is adding products catalog inside WhatsApp, so users don’t need to go to external websites. Then all from products exploring to payment process (later on) could be done entirely within WhatsApp experience.

Catalogs are a mobile storefront for businesses to showcase and share their goods so people can easily browse and discover something they would like to buy. Previously businesses had to send product photos one at a time and repeatedly provide information — now customers can see their full catalog right within WhatsApp. This makes business owners look more professional and keeps customers engaged in the chat without having to visit a website.

WhatsApp blog

Fun note, the feature demo in WhatsApp blog is for a local Indian store. Good one WhatsApp 😉

WhatsApp for business

3- Reliance Jio + Facebook vs. Amazon

With only about half of India’s 1.3 billion people online so far, e-commerce sales are projected to more than double to $68.4 billion by 2022 from $26.9 billion in 2018

Wall Street Journal

With the promising opportunity in India, someone else was watching. Who knows a lot about e-commerce, Jeff Bezos.

Jeff Bezos visited India recently to announce an extra $1 Billion investment – after the initial investment $5 Billion -, and told a gathering of local Amazon sellers:

The intent is to help more small businesses start selling on the company’s marketplace. The new funds will supplement the $5 billion that Amazon has said it is spending to build out its Indian business […] We’re making this announcement now because it’s working,” Mr. Bezos said referring to Amazon’s efforts to get India’s legions of mom-and-pop shops connected to its platform. “And when something works, you should double down on it.”

Wall Street Journal

It’s interesting to see and learn from what’s happening in India in the near future since similar competition fields happen in other places like in Africa or the Arabic world while big tech companies are looking to the east for strategic opportunities.

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