Building Ecosystems: RIL & also AMZN/FK
Happy New Year and happy reading !
Just the way Alibaba and Tencent as two dominant ecosystem players in China, we believe cos like RIL, Amazon, Flipkart have the potential to build ecosystems.
RIL leading the way...
Over the next 3-5 years, we expect RIL to have c. 500 mn mobile users, offer broadband services to c. 20-25mn households & cater to 12-15mn SMEs. RIL’s approach of owning the “pipe” as well as the “services” offered on the pipe should help it keep the subs base captive and apart from the core telco and retail offerings, company could also offer other digital services. For instance, entertainment offerings would help RIL improve stickiness. Jio may not fully monetize this but would keep users captive to cross-sell other offerings. An omni channel approach on commerce would help RIL sell its grocery, apparel and electronics items to a wider audience base. By working with the Kiranas, RIL would likely increase its B2B sales as well. The company continues to invest in technology and is partnering with world’s best tech-cos (Google, Facebook, Microsoft) as well as Indian start-ups (invested in 20+ startups).
Majority of acquisitions were done to add value/fill gaps in RIL's consumer offerings where mgmt believed it is difficult to build in-house. All investments fall under 5 categories: Telco, Retail, Education, Healthcare, and Agriculture. Despite buying majority stakes in most of these start-ups, RIL has left the control with the start-ups, which we think helps ensure a vibrant/innovative culture (vs. corporate culture) that is liked by Millennials. We believe RIL wants these entrepreneurs to own individual niches which frees up bandwidth for senior mgmt to focus on core issues. Mgmt is also ensuring that they could work with the younger talent who otherwise wouldn't have joined RIL.
RIL’s start-up acquisition strategy is “Marrying innovation with scale”.
Amazon & Flipkart not far behind...
Even Amazon and Flipkart have taken the ecosystem approach. These cos not only have their own payments and logistics arms, but both of them have made investments in variety of tech-start-ups. Flipkart recently acquired Walmart’s B2B business in India. Unfortunately, current laws don’t allow Amazon and Flipkart to acquire controlling stake in offline retail entities. If rules change in future, we see potential for more acquisitions.
I hope this was worth your time.
Thank you for reading.