Kar Lo Duniya Mutti Mein: The Game Changing Case of Reliance Jio

The Game Changing and Disruptive Entry of Reliance Jio

The entry of Reliance Jio into the Indian Telecom sector has been if not anything, disruptive and game changing. Starting with the sheer scale of its operations wherein it leveraged its existing network of stores and outlets to sell new connections to the consumers, to its humungous size wherein it managed to sign up nearly 200 Million users in less than Two Years, to its aggressive pricing and deep discounting strategies, and its flexible and bundled plans where it offers a handset along with a new connection, the brains behind Reliance Jio, and Mukesh Ambani in particular have left no stone (or rather no mobile tower unturned) in their quest for dominance and supremacy.

Indeed, the awe inspiring entry of Reliance Jio has spurred many experts into commenting that perhaps Mukesh Ambani was fulfilling the vision of his late legendary father, Dhirubhai Ambani, whose dream was to put a mobile in the hands of each Indian and make calling cheaper than a postcard.

While the ad jingle for the erstwhile foray into the Indian Telecom sector before the Ambani brothers broke up was “Kar Lo Duniya Mutti Mein”, or bring the world into the palm of your hands evoked much humor from the viewers, it is only now that such a game changing ambition seems to be fructifying into reality.

Moreover, the recent news that Mukesh’s brother, Anil Ambani, is thinking of exiting the Telecom sector would only strengthen the perceptions that the former is within reach of actualizing the Ambani family dream.

Enter the Dragon: Jio and Disruption

To take examples of how disruptive Jio has been, one has to look no farther the wave of consolidations and mergers and acquisitions happening in the Indian Telecom sector for the last two years. For instance, Vodafone and Idea are close to a megamerger which would make them the largest operator by volume.

In addition, there are numerous other smaller players who are either selling their business lock, stock, and barrel, or piece by piece wherein they exit either the Towers and Physical Infrastructure assets or their user base being migrated to other players.

Apart from this, the fact that the Draft of the New eCommerce policy mentions how the Indian Government is thinking of banning eCommerce firms managed or funded by foreign players from having their own warehouses means that this is music to Mukesh Ambani’s ears as he can then use his extensive network of inventory holding and warehouse places to combine the commerce aspect with the content and the carriage.

In other words, if this policy becomes law, it is envisaged that Jio would be able to capitalize on the 3Cs of Content, Carriage, and Commerce wherein the first is through the multiple offerings on Jio handsets including news, entertainment, and sports channels, the second is through the humungous base of physical and virtual infrastructure along with the user base, and the last C which is commerce would be realized by bundling online and mobile selling and the warehouses for holding inventory.

Indeed, the reputed business publication, Bloomberg, mentions how if Reliance Jio has to make profits, it has to necessarily focus on monetizing the 3Cs and which can only happen if the third C or the Commerce aspect is exploited to the maximum extent possible.

Show Me the Money: Jio and Profitability

Indeed, when talking about making profits, it needs to be mentioned that at the moment, Reliance Jio is focused on building economies of scale and the concomitant efficiencies and leveraging the synergies that accrue from integrating the end to end mobile telephony value chain. further, Jio is narrowly focused on “stickiness” which is the term used to describe how users who once sign up to its offerings would stick to it and for this to happen, its pricing has to be very appealing and its discounting very aggressive.

Having said that, this alone does not guarantee profitability as users once used to freebies would immediately migrate to other players once the Punch Bowel is withdrawn. This is the reason some experts are skeptical about the longer term viability of Mukesh Ambani’s strategy wherein Jio would be forced to come down to Earth and start behaving like other players.

Though Ambani has poured nearly $36 Billion into Jio, the proof of the pudding is in the eating and at some point or the other, there needs to be ROI or Return on Investment in terms of revenues and profits. Moreover, it is also speculated that Reliance is cross subsidizing Jio by investing profits from the other businesses into the mobile arm and such strategies work for a while before reality dawns.

Analysis using Tools

Thus, as can be seen from the discussion so far, these are both the best of times and the worst of times for the Indian Telecom Sector with each player outdoing the others in offering discounts and freebies spurred by Jio and while the party is continuing at the moment, nobody is sure when the music would stop.

With this in mind, we can now turn to the SWOT, Porter’s Five Forces, and BCG Matrix Analysis to gain a practical insight into how Jio operates and whether it would be successful in the longer term. Indeed, these tools help us to map theory with practice and are useful in providing a frame of reference for analysis.

SWOT

Strengths

Reliance Jio’s strengths lie in its deep pockets with strong brand recall due to its backing by the redoubtable Reliance and its sheer scale and size of operations. Having signed up Millions of users in relatively short time, Jio is poised to reap the benefits of the economies of scale in addition to its leveraging of its existing physical network of stores and outlets that actualize synergies in the process.

Weaknesses

The Million (or let’s say, the Billion Dollar) question is when will Reliance Jio make profits. This has led to concerns among investors that it is aping the business model of eCommerce firms such as Amazon which persist despite no significant profits in some markets just to gain market share. Further, sooner or later, investors in Reliance would start questioning as to how long Mukesh Ambani can cross subsidize Jio, though the tag of India’s Richest person means that he would be given more time.

Opportunities

Reliance Jio has a large opportunity in entering the eCommerce sector given its physical network and the virtual assets including the very large user base which can all combine to give it the much needed traction in Horizontal and Vertical Integration. Indeed, Jio has already integrated itself vertically following the lead of Dhirubhai Ambani, who was a strong believer in this business model. In addition, it can create complementarities to its existing businesses and this is a significant opportunity.

Threats

Incumbent players are giving Reliance Jio a run for its money as can be seen from the all out price war and the aggressive consolidation and mergers and acquisitions. In the future, Jio has to draw a line in its attempts to create market share without bringing in the Moolah. Apart from this, the entry of Jeff Bezos into the Indian Market poses some risks to its horizontal integration strategies.

Porter’s Five Forces

Threat of Substitutes

As mentioned earlier, by actualizing the vision of making calls cheaper than sending a postcard, Jio has ensured that consumers would stick to it rather than migrating to substitutes. Having said that, it is also the case that Jio has to be more aggressive in rural India where the consumers still persist with the age old and time tested modes of communication.

Bargaining Power of Buyers

The Indian Telecom sector is a consumer’s dream come true with multiple players wooing them aggressively and this in turn, ensuring strong buyer power. Though Jio is attempting stickiness and brand loyalty, it needs to be mentioned that Pre Paid consumers are known for shifting brands as per their convenience. Thus, Jio needs to focus more on Post Paid connections than it is doing now.

Bargaining Power of Suppliers

Given the deep dependencies between suppliers and telecom players, it is no wonder that the latter find it hard to have the upper hand with the former. Having said that, the Ambani connection means that very few suppliers would risk being cut off from the Spigot and hence, Jio does have more leverage over suppliers than other Telecom players. Of course, its integration strategies mean that suppliers do hold some cards as the parts of the value chain once established would need much effort to find alternative suppliers.

Entry and Exit Barriers

With high entry barriers, thanks to governmental policies and the capital intensive nature of the business, Jio can rest easy as far as competition from new entrants is concerned. In addition, while it was earlier though that exiting the sector is easy, the experiences of Vodafone, and even the other sibling, Anil Ambani, have surprised many as far as the ease with which exiting the sector is concerned.

Competitive Rivalry

An intensely competitive market means that Jio has to be on its toes to ward off competitive pressures and though it has so far remained ahead of the curve and other players, longer term prospects are yet to be clear. Moreover, with the real time changes in the fortunes of the telecom firms, all bets are off for the longer term and most analysts these days are focusing on the near and the medium terms.

BCG Matrix

Relative Market Share

Market Growth Rate Stars Jio Question Marks
Cash Cows Dogs

The BCG (Boston Consulting Group) Matrix is an easy to use tool for evaluating different business units of a single conglomerate about the potential and the relative positioning of each vis-à-vis the other units. As has been mentioned throughout this case study, Jio being one arm of the vast Reliance behemoth has to be evaluated with regards to the other arms of the conglomerate.

For instance, while Jio at the moment is a Star due to its high relative market share and the growing Indian Telecom market, it can turn into a question mark either due to its reaching a plateau as far as market share is concerned, or due to the saturation of the overall market.

Having said that, it also has the potential to become a Cash Cow if it stabilizes over the longer term in a strategy that balances market share growth with overall market growth. Further, Jio is already showing signs of maturing as a business unit and hence, this is a likelier outcome than it turning into a question mark vis-à-vis the other business units of Reliance.

As for turning into a Dog over the longer term, this is not really an outcome that is certain given the already deep linkages it has established in the Indian Market and the strong brand connections it has with the Indian consumer. Thus, it is our evaluation that Jio is likely to stay in the first column rather than the second one in the above mentioned BCG Matrix.

Conclusion

As can be seen from the analysis so far, Jio is poised at an inflection point where the path it chooses now would determine its future prospects. Moreover, with Mukesh Ambani having staked his reputation on its success, both Jio and he cannot afford to let it lapse or fade away in the same manner in which Anil Ambani’s foray into Telecom fared. Thus, the Hindi Phrase, Jio Jee Bhar Ke, seems to be apt as far as how the future would unfold is concerned.


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