The Biden administration accused Meta Platforms Inc of attempting to buy its way to dominance in the metaverse on Thursday, launching a high-profile trial to prevent the Facebook parent from acquiring virtual reality app developer Within Inc.
In July, the FTC filed a lawsuit to halt the transaction, claiming that Meta’s acquisition of Within would “tend to create a monopoly” in the market for virtual reality (VR) fitness apps. It has asked the judge to issue a preliminary injunction, which would prevent the proposed transaction from proceeding.
FTC lawyer Abby Dennis stated in her opening statement that the Within acquisition was part of Meta’s effort to acquire new and diverse virtual reality users, including customers of Within’s popular subscription-based virtual reality workout app Supernatural.
Dennis added that this would complement Meta’s existing virtual reality users, who skew young and male and are more focused on gaming.
“Meta could have chosen to use all of its vast resources and capabilities to build its own dedicated VR fitness app,” Dennis said, referring to a plan from early 2021.
According to Dennis, the plan, Operation Twinkie, entailed expanding a rhythm game app called Beat Saber, which the company acquired in 2019, into the fitness space through a proposed partnership with digital fitness company Peloton.
She cited an email from CEO Mark Zuckerberg in which he stated that he was “bullish” on fitness and called the proposed partnership with Peloton “awesome.”
Lawyers for Meta and Within contended that the FTC failed to define the relevant market and that the companies compete with a wide range of fitness content, not just VR-specific fitness apps.
Meta’s lawyers also argued that the FTC underestimated the competition in the market it had defined, citing the possibility of fellow tech titans Apple Inc, Alphabet Inc’s Google, and Bytedance joining the fray.
Rade Stojsavljevic, who manages Meta’s in-house VR app development studios, testified that he proposed the Beat Saber-Peloton collaboration but did not develop a formal plan and never discussed the idea with either party.
Internal court documents from early 2021 showed Stojsavljevic proposing acquisitions of VR developers before they were “cannibalized” by competitors and discussing pressure from Zuckerberg to “get aggressive” in response to reports of a potential Apple headset.
The trial, which is set to last until December 20, will be a litmus test for the FTC’s attempt to prevent a repeat of the company acquiring small upcoming would-be rivals and effectively buying its way to dominance, this time in the nascent virtual and augmented reality markets.
In a separate lawsuit filed in 2020, the FTC is attempting to compel Meta to unwind two previous acquisitions, Instagram and WhatsApp. At the time the companies were purchased, both were in relatively new markets.
PRESSURE TO CREATE APPS
A government victory could limit Meta’s ability to operate in an area of emerging technology known as the “next generation of computing,” virtual and augmented reality.
If it is barred from making acquisitions in the space, Meta will be under more pressure to create its own hit apps and will forego the benefits of bringing innovative developers in-house in terms of revenue, talent, data, and control.
Within created Supernatural, a “complete fitness service” with “expert coaches,” “beautiful destinations,” and “workouts choreographed to the best music available.”
It is only available on Meta’s Quest headsets, which offer immersive digital visuals and audio and are estimated to account for 90% of global shipments in the virtual reality hardware market by market research firm IDC.
The vast majority of the over 400 apps available in the Quest app store are created by third-party developers. Meta owns Beat Saber, the most popular virtual reality app in the Quest app store, which it was considering expanding with the Peloton partnership.
The social media company agreed to buy Within in October 2021, just one day after changing its name from Facebook to Meta, signaling its desire to create an immersive virtual environment known as the metaverse.
Zuckerberg will testify in the trial. Within CEO Chris Milk and Meta Chief Technology Officer Andrew Bosworth, who runs the company’s metaverse-focused Reality Labs unit, are also potential witnesses.
The trial is taking place in the United States. Northern District of California District Court