Daybreak - Google and Jio's cost-friendly phone ended up being a costly mistake

Episode Date: April 21, 2023

In 2020, Google invested $4.5 billion  in Reliance's Jio Platforms for a 7.7% equity. The flagship product of this alliance was a budget friendly 4G smartphone priced at Rs 6500 called JioPhone Next. The idea was to make the internet more accessible to millions of more Indians.When it was launched, the telco was expected to sell at least 20 million devices in a year. But so far, it has sold only 2 million.A tech giant and a telco giant coming together to make a pocket-friendly smartphone--the plan sounded perfect. What could've gone wrong?Tune in to find out.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. In less than three years ago, Google invested a whopping $4.5 billion in Reliance's geo-platforms. In a blog post announcing the news, Sanjay Gupta, Google's country head and vice president, had said that the partnership came at an exciting but critical stage in India's digitization.

The idea behind the deal was to make the internet accessible to millions of more Indians across the country. So it only made sense that the flagship product of this alliance between these two giants was a budget-friendly 4G smartphone priced at $6,500. Here's what Sundar Pechai, Google's CEO, had said about it. Our teams have optimized a version of our Android OS, especially for this device. It'll offer language and translation features, a great camera, and support for the latest Android updates. It's built for India, and it'll open up new possibilities for millions of new users who will experience the Internet for the very first time. And we can't wait to show you the device later this year.

Now, as you can tell, Geophone was a big deal for both the partners, especially for Google, so much so that the company set up a separate team of engineers and product managers to help Geo. They worked with Geo on a tweaked version of Android called Pragati OS. This team was internally codenamed Namaste. And it had a group of 30 to 40 engineers reporting to Ram Papatla, the general manager and India engineering lead at Google India. At the time of the launch, media reports said that Google's aim was to sell 50 million devices within a span of six months.

But the Ken reporter Pratap Vikram Singh spoke to some executives at Google, and they said their expectations were slightly more realistic. They believed that Reliance Geo would sell at least 20 million handsets within a span of a year. But six months after the launch, the phone's price was reduced by 40%. Why? The sales did not go as expected. In fact, forget about selling 20 million handsets in a year. You will be surprised to know that so far, Reliance Geo has only managed to sell 2 million units of Geophone next. A tech giant and a telecom giant came together to make a budget-friendly smartphone for millions of Indians.

What could have possibly gone wrong? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Snigda Sharma, and I Don't Chase the News Cycle. Instead, twice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Friday, the 21st of April. The terms of the phone partnership were quite clear between Google and Geo. Google was supposed to provide the optimized

operating system or OS, and Gio would make the device and take care of everything else, from price point and go-to-market strategy to distribution and marketing. But a former Google executive told Pratap that Gio's promises were a bit too aggressive. They said that they felt that Gio could have done better with not just pricing, but also distribution and promotions. Another former Google executive told Pratap that Google and Gio teams could not agree on specifications for the smartphone. Google expected that the smartphones be priced cheaper. Plus, the very basic way in each of the teams functioned was very different. Google has a relatively

more democratic work culture. But Geo, on the other hand, takes a more top-down approach when it comes to decision-making. Also, because of the COVID pandemic, the teams could only interact through video calls for most of 2020 and 2021. A key issue in this partnership was the chipset provided by Qualcomm, the manufacturer with whom Geo has a four-year contract. An executive close to Qualcomm told us that Geo expected the semiconductor company to supply cutting-edge chipsets at cheaper price points. But in 2020, the global semiconductor supply chain was hit and the prices spiraled out of control. geo meanwhile expected Google to optimize the operating system for phones with one Gb of RAM. But the Giophone next came with 2GB RAM.

The higher the memory, the costlier the device. Smartphones in this segment from other original equipment manufacturers usually come with either 1GB or 2GB of RAM. So currently, the partnership between these two giants, at least for smartphones, is in limbo. So what is next for Google and Google. Gio then. Stay tuned to find out. Both the companies Google and Gio have had discussions over building 5G smartphones. Ambani at the annual general meeting in 2022 had said that Gio is working with Google to develop ultra-affordable 5G smartphones in India. And we all have seen the pace at which Gio has rolled out 5G services across the country. It was unprecedented. Which is why launching

these affordable 5G handsets is also very important for Gio. It has to recover its investment in the 5G spectrum and network rollout, which was to the tune of $11 billion. And while there may be many challenges for Gio to achieve this goal, in 2023, things are slightly different. Gio is not really dependent on Google like it was in 2020. The memory chip prices have gone down in the last few months. Multiple executives close to Gio told the Ken that Gio is also exploring alternatives for Qualcomm chipsets. They said that the telco is in talks with South Korean manufacturing giant Samsung.

But again, how affordable can an affordable 5G phone be? Two executives close to Qualcomm and a rival telco while speaking to the Ken question the feasibility of making such devices at a lower cost. The executive close to Qualcomm told us, and I'm quoting, the 5G chipsets aren't cheap, and there is only so much you can compromise with respect to device features like RAM, camera and others to have a good experience. End quote. But if things go as planned, Geo may announce its 5G smartphone plan at its 2023 AGM, which is usually held in July to August. But what remains unclear is if Google will allocate any.

more resources to these smartphones. So what is Google up to then? Coming up next. You see, big tech has had a complicated relationship with India's telco giants, both Gio and Bharti Aten. They have often not seen eye-to-eye on a bunch of issues that have come under the regulatory scanner, such as data localization, market dominance, and communication OTT licensing.

A former Google executive told us that Google realising, that it was difficult for Geo to deliver in the given circumstances. So guess what Google did. It hedged its bet by investing $1 billion in Airtel last year. Unlike the all-equity dean structure that it had with Geo, Google's investment in Airtel was split into two parts. One was a 1.3% equity stake for $700 million. And the rest was for collaborations to enhance device affordable

and cloud ecosystem development. A part of Google's $300 million investment at Airtel is going to be utilized for handsets. It is already offering bundle plans with a RealMe device and working with other original equipment manufacturers on affordability. Airtle's chief executive, Gopal Vitil, however, clearly stated in an analyst call last year that the telco will never go into subsidizing handsets.

And that is simply because the current average revenue per user does not allow it. But executives close to Google said that the investment in geo remains strategic and long term and a rather necessary bet. After all, geo is the leader in the Indian telecom market. And Google needs to safeguard its position in India, one of the world's fastest digitizing economies. Which is why for now, Google has to keep geo. close. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps, and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien. Thank you.