This article has been updated to note Google's confirmation of its investment in Jio.
Much like Facebook's (FB) recent $5.7 billion investment in Jio Platforms, Alphabet's (GOOGL) decision to invest billions in Jio could be something of an insurance policy in a market where it already has an enormous presence.
A day after Bloomberg reported that Google is in "advanced talks" to invest $4 billion in Jio -- the parent company of top Indian mobile carrier Reliance Jio -- Google formally announced that it's investing $4.5 billion in the company. Not surprisingly, the investment will be made through Google's India Digitization Fund, which was unveiled on Monday and will invest $10 billion in India over the next five to seven years.
Google says it has also reached a deal with Jio to "jointly develop an entry-level affordable smartphone with optimizations to the Android operating system and the Play Store." And the company suggests it will work more broadly with Jio and other Indian firms to ensure that Android phones "are within reach for many more Indians across the country."
Jio claimed 387.5 million mobile subs at the end of 2019, thanks in large part to its dirt-cheap plans. And though results seem to be mixed so far, Jio has also launched a host of mobile apps and online services. They cover everything from e-commerce, payments and streaming services, to messaging, security and browser apps.
Given that Facebook already has a 9.9% stake in Jio, a Google-Jio partnership wouldn't by any means be an exclusive one. And with Jio pretty eager right now to reel in high-profile foreign investors -- along with Facebook, it has struck investment deals this year with Intel (INTC) , Qualcomm (QCOM) , PE firm KKR and Saudi Arabia and Abu Dhabi's sovereign wealth funds -- it's possible that a Google deal would be followed by an investment from another major Internet company.
But just as Facebook plans to work with Jio to help Indian small businesses promote themselves and to integrate WhatsApp's services with the JioMart grocery marketplace, Google could see some opportunities to integrate popular apps and services with Jio's. For example, the companies could work to grow adoption of the Google Pay service, which has gained a healthy following in India, or to get retailers to list items on the Google Shopping platform, which now supports free listings.
Also: Given that India (like many emerging markets) has low average ad prices, Google might see an opportunity or two to leverage Jio's subscriber data to improve its ability to deliver targeted ads to mobile users via its apps and services, at least provided such efforts don't run afoul of privacy concerns.
But given how immensely popular Google platforms such as Search, YouTube, Android, Maps and Chrome already are in India -- each has a dominant market share and claims hundreds of millions of local users -- a large investment in Jio could to a large extent be about maintaining Google's current position in India over the long run, as the country's economy and middle class continue growing.
Working with Jio to develop low-cost Android smartphones that deliver a reasonably good user experience would definitely help on this count, particularly since India still has a relatively low smartphone penetration rate. According to research firm Newzoo, India had a 36.7% smartphone penetration rate as of 2019, though (given the country's population) this still amounted to a base of 502 million users.
Also, the political connections of Jio and founder Mukesh Ambani could prove to be valuable for Google (and for that matter, Facebook) as it continues doing business in a country where regulators have often been a headache for foreign multinationals. And at a time when Google is facing intense antitrust scrutiny in the U.S. and Europe, it probably hasn't overlooked the possibility that it could eventually face more scrutiny in India as well.Moreover, given that Google's most popular apps and services remain shut out of China and that the company has abandoned attempts to launch some of them there, India's strategic importance to Google is now arguably bigger than ever. If a $4.5 billion investment can help secure the company's position in India over the long run, that's money well spent.