Intelligence Brief: How is Jio leveraging start-ups?

The concept of operators targeting start-ups for acquisition is not new: the story around operator moves on this front – take Orange, AT&T, KDDI, et cetera – is well known. And, if you’re building a list, you should probably add Reliance Jio to it.

Yet, as much as Jio is known for the way it upended the Indian mobile market, its progress with acquisitions is often overlooked. That’s a shame. Its journey, for sure, has been no less than a B-school case study of leveraging acquisitions for rapid growth.

Acquisitions
Jio, the telecom operator which has revolutionised India by commoditising data, has stepped-up its engagement with start-ups through outright acquisitions, partnerships, or equity stake purchases. The company’s due-diligence team has been extremely busy, in particular, over the last few months, cherry-picking start-ups in music streaming apps, media production, AI, and blockchain. To name a few:

Haptik. Jio Digital Services struck an approximately $98.42 million deal to acquire Haptik, one of the world’s largest conversational AI platforms which counts Samsung, Coca-Cola, Future Retail, KFC, Tata Group, Oyo Rooms and Mahindra Group among marquee clients. It underlines Jio’s strategy of providing Indian users conversational AI-enabled devices with multilingual capabilities
Saavn. In March 2018, Jio announced integration of its digital music service, JioMusic, and OTT platform Saavn, which powers Amazon Alexa in India. The combined entity, valued at more than $1 billion, then introduced JioSaavn to compete with the likes of Amazon Music, Apple Music and Gaana.
Radisys. June 2018 saw Jio buy open telecom solution provider Radisys for $74 million, in a deal focused mainly on enhancing Jio’s presence in 5G, IoT and open source architecture adoption.

All told, Jio has invested $37 billion so far in the four years since its birth and is still running strong. For comparison, the total capex incurred by the telecom industry in India from 2010 to 2016 was around $38.7 billion. And how does Jio’s acquisition strategy fit in?

Jio sees itself as pillar around these technology companies, functioning as a toll gate for the host of the services it’s bringing to the table through vertical and horizontal integration. Jio has set up film, music, television and sports streaming services; news and content aggregators; chat, cloud storage and payment services, all of which appear poised to strengthen the company’s new commerce and digital revolution drive. By integrating start-ups, Jio wants to shed the image of being a mere connectivity provider. It has built a highway in the form of its mobile network. Now, it is building its digital ecosystem of apps by embracing start-ups and technological companies into its fold.

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But, let’s take a step back and consider a few facts about the Indian market.

Figures from regulatory body TRAI show more than 562 million Indian users accessed the internet through their phones as of June.

Jio, the youngest of the Indian mobile operators had a predominant share of subscribers (331.26 million or approximately 59 per cent). Meanwhile, media reports suggest that 1GB of mobile data cost $0.26 in India, compared with $12.37 in the US, $6.66 in the UK, and a global average of $8.53.

Why does any of this matter? Sheer scale and competitive pricing have been leveraged by Jio to build an entire digital lifecycle for the customer, enabling them to access services via single platform. Hence, acquisition of these start-ups presents a unique opportunity for Jio, either to transform its existing domain or add new services for its customers.

Again, Jio is not alone in this regard: there are scores of operators aggressively eyeing start-ups across the globe, hoping they represent figurative cogs fitting directly into their business machinery. Yet, aspirations and outcomes are not the same thing. Simply going on an acquisition spree doesn’t assure that you will be entrusted with the keys to success.

What make these start-ups operator eye candy?
It is simple to comprehend these start-ups are totemic of operators current appetite to transform themselves into end-to-end solution providers and, quite frankly, the benefits of this arrangement are mutual. On one hand, the sheer size of most operators offers a unique proposition to these acquired technology companies by allowing them access to literally millions of customers. On the other hand, considering the vast trove of data operators house, it could benefit them to apply start-ups relevant software, automation and virtualisation solutions. Meaningful collaboration and acquisition could help the operators to unlock the vast potential for business insights and new services for telecom operators.

Operators can also leverage expertise and cutting-edge solutions which these start-ups bring to streamline their business models, user experience, customer profiling and engagement, as well as redefining their cost in marketing, sales and operations. But the word to watch here is “meaningful”. Although not a really a start-up, the industry has witnessed the fiasco of the Tumblr acquisition [2] and it’s worth learning a lesson.

What can go wrong?
Functionally, start-ups and operators are worlds apart. Start-ups get to be fast moving and lean, with agile decision making allowing them to leverage this flexibility. But, when working in tandem with established operators they can lose their edge. This culture clash can yield collateral damage too. For example, highly skilled employees of these start-ups (the backbone of any technology company) might consider moving elsewhere during or after the acquisition process.

Beyond cultural dissonance, there’s also the issue of business dissonance: it’s not necessarily the case that a promising new business will always fit in an operator’s scheme of things. Consider Tumblr, which became part of Verizon following its acquisition of Yahoo. You might have asked, backed then, how the two companies fitted together: when Verizon sold the asset for less than $3 million (significantly less than the $1.1 billion Yahoo paid for it in 2013), pointed to the answer.

And it all means?
Jio, like other operators, has seen the writing on wall: technology, apps, content, advertising, the cloud, and IoT have become a mainstay of modern digital survival. The acquisition of relevant start-ups underpins an attempt to hold the ground in an area where innovation is happening, with significant value creation and new business models hopefully following.

It will be interesting to see whether Jio can emulate the results of business strategies adopted by long-serving operators across the globe through its spate of acquisitions and partnerships with start-ups or it fails to give them the required attention.

Ashish Singhla – senior research analyst, strategy – GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] https://www.mobileworldlive.com/wp-content/uploads/2019/10/Oct-10-GSMAi-blog-chart-1.png
[2] https://www.mobileworldlive.com/featured-content/top-three/verizon-sells-tumblr-as-media-makeover-continues/

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