Reliance Jio’s aggressive cloud push with Microsoft fret Amazon and Google in India

After taking the Indian telecom scene by storm to reach the pinnacle (by subscriber base) in just three years of commercialization, Reliance Jio Infocomm (Jio) is all set to spread its wings into the booming Indian cloud market. In a 10-year deal with the cloud heavyweight Microsoft, Jio will build new cloud data centers across India that will support Microsoft’s Azure cloud platform to offer economical India-native cloud-based solutions for enterprises. As a part of this, two initial data centers are being built by Jio in the Indian states of Gujarat and Maharashtra – both slated to go live by the end of 2020. These two facilities are reportedly ~7.5MW in capacity, small relative to the largest global facilities but significant for India.

Microsoft has been part of the Indian cloud scene since 2015, before its closest webscale network operator (WNO) rivals Amazon (2016), Google (2017) and Alibaba (2018). Though Microsoft claims to operate three data centers in India, interestingly, these are hosted in a part of existing data center companies such as CtrlS Datacenters and Netmagic (so do Amazon and Google). The partnership with Jio also has a similar set up – Microsoft’s Azure Cloud hosted on Jio’s data centers. By contrast, Microsoft’s recent cloud partnership with AT&T will likely have the telco relying primarily on Microsoft built infrastructure.

The Jio-Microsoft deal also marks telcos’ greater engagement in the Indian webscale arena offering cloud and network connectivity solutions, with Airtel already in the backdrop for quite some time – Airtel operates a wholly-owned data center unit, Nxtra Data, which is prepping for data center footprint expansion.

Jio, Microsoft deal a win-win for both

The key to this deal is how it allows both the firms to focus on their respective competitive edge. While Jio’s scale and infrastructure clout coupled with its understanding of the Indian landscape would assist in delivering seamless connectivity, Microsoft will focus on what it does best – developing and deploying its Azure cloud and AI solutions, on Jio’s network. The deal would also allow Microsoft to grow its cloud market share in India, a key point considering that cloud has now grown to become Microsoft’s biggest business segment by revenues, and is looking at India as a market to boost this growth further.

Jio, on the other hand, will bank on Azure’s brand of solutions to help persuade Indian enterprises to switch from the cloud platforms of Amazon, Google, and Alibaba, onto Azure-backed Jio’s network. Besides, Jio’s quest to explore and build high-growth businesses beyond telecom complements its decision to venture into cloud.

Key deal disruptors – ‘pricing’ and ‘native language compatibility’ – to benefit target market, and unsettle rivals

India being a price conscious market, Jio’s strategy is apparent – triggering a price war by aiming at the bottom of the ‘enterprise pyramid’, primarily comprising the startup ecosystem and SMEs, without compromising on solutions’ quality while leveraging Microsoft’s Azure brand. Jio will offer ‘free’ connectivity and cloud infrastructure to promising startups, and SMEs will be offered customized and bundled solutions encompassing connectivity, productivity and automation tools starting at just INR1,500 (US$21) per month. Similar solutions offered by rivals such as Amazon and Google can cost ~10x that price.

In addition, the Jio-Microsoft duo is looking to plug a key void left by the existing peer offerings for SMEs, i.e. local language compatibility. Jio will leverage Microsoft’s speech and language cognitive services to provide cloud and digital solutions supporting major Indian languages. This could prove to be a game-changer in a market with such language diversity as India. Local language support will likely boost broader adoption among SMEs who still largely cater to the needs of native regions.

These developments are surely going to hurt the existing cloud players, especially Amazon, Google, and Alibaba, who have a lot to ponder on countering Jio-Microsoft threat. Amazon, which has a sizeable SME clientele in India, faces the maximum risk as scores of SME customers are expected to switch from its cloud platform. Alibaba, a Chinese operator, may try to counter the Jio-Microsoft pricing but privacy and political concerns may push customers to Jio.

So how will the peers respond?

It is clear that Jio is looking to replicate its telecom price war success story in the cloud space, i.e. by offering free and discounted cloud solutions which will eventually force bigger peers to match tariffs while pressing smaller rivals to go out of business. Amazon, Google, and Alibaba will, thus, likely come up with bundled connectivity solutions at cheaper rates. Another likelihood is more webscale partnerships with local telco operators. Airtel, which already operates data centers through Nxtra Data and is on an expansion spree across India, could well be the beneficiary. But it remains to be seen if these efforts by peers are competitive enough to keep the Jio-Microsoft duo at bay. Jio’s mobile rivals are still struggling to recover from its disruption of telecom. At the least, the Jio-Microsoft partnership will help accelerate India’s cloud adoption and digital transformation.