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Facebook's India ad revenue, WhatsApp Pay takeup to benefit from Jio deal

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Facebook's India ad revenue, WhatsApp Pay takeup to benefit from Jio deal

Facebook Inc. will benefit from its recently announced investment in Reliance Industries Ltd.'s Jio Platforms Ltd. through an uptick in advertising revenue and an accelerated rollout and adoption of WhatsApp Pay, experts said.

In a much-anticipated move, Facebook paid US$5.7 billion for a 9.99% stake in Reliance's rapidly growing telecommunications and digital services business Jio. As part of the deal, the Indian company's online grocery delivery platform JioMart will be linked with Facebook's WhatsApp Inc. so that customers are able to transact via the messaging app. Reliance said the partnership will focus on India's 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of SMEs in the informal sector.

Reliance Jio will give Facebook access to its users and in doing so, will create an opportunity for Facebook to drive up its advertising revenue by "aggressively" selling its services to a wider base, Faisal Kawoosa, founder and tech analyst at TechArc said.

At the moment, the informal sector in India has not been able to use Facebook as a marketing tool and it is largely seen as a social media platform, Kawoosa said. With the Facebook-Jio deal, SMEs in the country will be "encouraged" to increase ad spend on the platform to sell more products and to compete against others in the market, he said.

"Some SMEs already have a Facebook page but do not know how to use it. This is where Jio can come in as a facilitator and guide them on how to use the social media platform as an advertising tool," he added.

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Through the WhatsApp integration and the use of machine learning and artificial intelligence tools to mine data, Facebook will also be able to target its users with advertisers more effectively, Jayanth Kolla, chief analyst and partner of Convergence Catalyst said. "Someone who has just used WhatsApp to order their groceries from JioMart will have fed Facebook with data on preferences and therefore may be targeted with digital ads accordingly," he said.

WhatsApp, which has an estimated 400 million users in India as of July 2019, is end-to-end encrypted and says it does not share messages, photos and account information with Facebook or any other Facebook-owned company, according to its website. It currently shares "limited categories of information" with Facebook companies such as the phone number used, device information, and "some usage information" such as frequency of features used. It is unclear how WhatsApp Pay will be integrated into Facebook's ecosystem.

The current amount of information that WhatsApp shares with other Facebook-owned companies is "good enough for an intelligent ad engine to profile its users and analyze consumption behavior," Kolla said.

Facebook is also likely to see its WhatsApp Pay platform rollout faster and adoption rate increase with a local partner on the ground, experts said.

Now that regulators are able to see how WhatsApp Pay will be used through the Jio deal, they are likely to green-light the launch, Nitin Mangal, independent research analyst said.

Facebook is reportedly set to launch the payment platform by the end of May. It has been in pilot mode for two years as it faced concerns from Indian regulators and government bodies regarding data localization, security and policy issues. Earlier this year, it reportedly secured regulatory approval from the National Payments Corporation of India to launch in phases, starting with 10 million users.

Reliance can help Facebook accelerate the rollout of WhatsApp Pay if it is able to leverage its captive base of 388 million Jio subscribers and push out exclusive offers, Pranav Bhavsar, Indian consumer analyst at ASA Capital Management said. WhatsApp Pay will see an immediate increase in transactions if it is able to target Jio's users, he said.

The deal announcements have provided no clarity on whether the two companies will share their sizable databases. However, in an interview with The Economic Times (India) the very next day, Reliance Industries Limited strategy head Anshuman Thakur said Reliance Jio will not offer preferential treatment as a network provider to Facebook and its units.

When WhatsApp Pay is up and running, Facebook will need help bolstering it against entrenched players in India's payment landscape, such as Alibaba Group Holding Ltd.-backed Paytm Mobile Solutions Pvt. Ltd. and Google Payment Corp., Bhavsar added.

He said the payment market has not been easy to crack because of the inconvenience of redirecting consumers from the government's unified payment platform interface, UPI. Bhavsar pointed to how PayTM has had to diversify its business model by rolling out wealth management services.

Ultimately, experts say Facebook's ability to capitalize on advertising revenue and a growing retail network of mom-and-pop shops, will depend on the success of JioMart. At the moment, JioMart remains a work-in-progress, with pilot tests of its ordering system on WhatsApp in three suburban areas of Mumbai underway, according to an April 27 Tech Crunch report.

The Facebook-Reliance Jio deal has been touted as the largest foreign direct investment transaction in the Indian tech industry to date. It is yet to receive regulatory go-ahead from India's Competition Commission.