In today's Finshots we see why Google continues to make investments in India's telecom providers

The Story

In July 2020, Google made a rather big promise to India — an investment of $10 billion!

They promised to invest this money through the India Digitization fund and they promised to do it within the next 5–7 years. Now obviously, Google wasn’t just being altruistic and committing this massive sum to a charity project. They had their own reasons.

As we wrote earlier

“do bear in mind that there is an ulterior motive here. Google wasn’t going to spend this money and push the digitization initiative if it didn’t make business sense. After all, a digital India translates to more people taking to the internet.”

So in a way it boils down to India’s 1 billion users. And they’re doubling down on monetising this massive user base.

Earlier this year, Google announced that it will be investing up to $1 billion in India’s number two telecom provider Bharti Airtel. And the deal was finally greenlit on Friday by the Competition Commission of India. $700 million will go into picking a minority (1.28%) stake in the telco. And another $300 million will be set aside for commercial deals that the two companies may pursue together.

And remember, this isn’t Google’s first investment in an Indian telco. Just after announcing the India digitization fund, Google had made another mega announcement — a whopping $4.5 billion investment into Reliance’s Jio Platforms. They paid this gargantuan sum to acquire a 7.7% stake in the company and a seat on its board!

But why do these investments in telcos even matter to Google, you ask? After all, Google already has a 95% market share in India’s mobile phone market through its Android operating system. It has a payments app that occupies the number two spot in India’s UPI ecosystem. And people use Google apps religiously. They are pretty much entrenched in the minds of Indian consumers.

So why continue to make these investments?

Well, two reasons. For starters, there are about 350 million or so folks in India who continue to use feature phones.

These are users that Google doesn’t quite have access to. However, if they’re well integrated with the largest telecom players in India, they could quickly migrate these users to platforms where Google is ubiquitous. It’s one way for Google to make more money. For instance, Google has already put together a low-cost 4G smartphone called JioPhone Next with Reliance to steer people into the new age of the internet. And rumours are that a similar deal for an affordable smartphone could be in the works with Airtel too.

But Google isn’t just eyeing the retail public with the telecom deals. It’s betting that this gives them a leg up in its cloud game as well. At the moment, Google Cloud only has a 10% market share when compared to its rivals Amazon AWS which commands a massive 33% And with India’s public cloud market expected to jump 30% (to $7.5 billion) in 2022, you can see why Google wants a bigger piece of the pie.

But how will telcos actually aid Google’s cloud ambitions?

Well, let’s start with the Jio deal. As part of Google’s investment, Reliance had agreed to shift its legacy businesses onto Google’s cloud infrastructure and use the platform for its massive e-commerce project — that is JioMart. And analysts estimate that the deal could fetch Google’s cloud division a staggering $1 billion in revenues. Thus making it one of the most lucrative cloud deals ever for the company.

You can imagine that they’re trying to ink such deals with Airtel too.

But why stop there? Think about the 58 million Micro, Small, and Medium enterprises (MSMEs) in the country — the backbone of the Indian economy that provides employment to over 111 million people while contributing 29% to the country’s GDP. It’s a segment that’s deeply underpenetrated and as MSMEs embark on their digital transformation journeys, telcos like Airtel and Jio will be vying for their attention — broadband services and digital payments.

But in reality, while the telcos do the dirty work, Google could potentially gain once again if they get the commercial arrangements right. Google could become the de facto cloud solution provider for many entities making this transition.

Once again, this is mostly speculation. But Google has consistently managed to stay at the top of the Indian consumer’s psyche by inking such partnerships and maybe this is just another feather in their cap.

Until then…

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PS: Google’s investment is no guarantee that it’ll be able to storm India’s cloud market though. Why’s that? Well, Reliance already has a 10-year cloud deal with Microsoft Azure that it signed back in 2019. And Airtel teamed up with Amazon AWS in 2020. But still, something is better than nothing, no?