Opinion | Facebook-Jio: A gawk-worthy deal


Mark Zuckerberg and Mukesh Ambani. Facebook and Reliance Jio. The big handshake has happened, and the world’s original social network megacorp now owns a tenth of Reliance Industries Ltd’s telecom subsidiary, Jio Platforms, in a deal that places the latter’s enterprise value at over $60 billion. Yes, we must all take a moment to gasp. Or gawk. Or profess ourselves awed in some way or another.

In the post-covid world, it makes more sense than usual. In fact, it more or less crystallizes the future of value generation. For a long time now, everyone has been heading online. Now the future is here in a way we couldn’t have imagined till recently. And it is plainly digital.

From an economic perspective, the advantages of a digital business have been known since the 1990s. Such a business is post-industrial. It has vast development costs, but once a great internet service is created, adding on customers—and thus revenues—costs virtually nothing. This kills the classic “marginal cost” curve of textbook theory, allows for infinitely increasing returns to scale, and opens up the possibility of enormous profits—for a market leader. The business edge assured by “network effects”, as shown by Facebook and its chat app WhatsApp, is even sharper. If a single social media platform becomes the norm, then its value rises as an exponential function of its users. The more users it gets, the more attractive it is for new users, and this means it will get even more sign-ups. After all, the whole point is to connect with others.

Combine those two digital phenomena, and you have a fortune that multiplies itself. In India, Reliance has sought to swerve its business towards the future, and if the equity deal translates into operational synergies, Facebook-Jio could maximize value in a way unseen before. Yes, it is gawk worthy.



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