28 July 2022

Something that Biden is Doing Right

We are actually seeing meaningful anti-trust actions.

Last week, the FTC blocked 4 hospital mergers, and yesterday, the FTC sued to block the criminal enterprise formerly known as Facebook from acquiring the VR products company Within.

Given that the pivot toward virtual reality by Zuckerberg is largely fueled by acquisitions, this is a significant move for Meta, and an even more significant move by the FTC, which is being proactive to prevent monopolization of a nascent market.

Bad for Zuck, great for the rest of us:

Today, the big news in antitrust world is that the Federal Trade Commission, led by Chair Lina Khan, filed suit to stop Facebook, aka ‘Meta,’ from buying virtual reality app maker Within. The vote was 3-2, with the three Democrats voting to file a challenge, and two Republicans voting against bringing it. While not a large acquisition by dollar amount - the deal is just $400 million - there are a number of reasons why this merger challenge is historic.

First, let’s go over the deal, and the FTC’s action to block it. In October of last year, Facebook changed its name to Meta, signaling that Mark Zuckerberg did not see much more growth in the social networking space that his firm had heretofore controlled. He is seeking a new set of markets to dominate, which he calls ‘the Metaverse,’ a term he borrowed from science fiction denoting a set of immersive digital worlds.


If this were the early 2010s, his strategy to get out of this morass would be simple. He would pay massively for TikTok, which is clearly the missed product opportunity for Meta. “It’s better to buy than compete,” Zuckerberg once said in email. But due to regulatory pressure and Chinese power, he cannot get control over TikTok.

Zuckerberg is not a great product guy, but he is good at monopolizing markets, particularly at technological pivot points. In the 2000s, he was able to vanquish MySpace by promising privacy and safety to users, and then bought Instagram and WhatsApp when the new computing platform turned out to be mobile. But he can’t do that today, with TikTok or any other large firm. (Indeed there’s a good argument that Zuckerberg’s monopolistic behavior is the reason that TikTok emerged in China, and not in the U.S. But that’s a digression.)

So where’s the new area of growth?

The answer, Zuckerberg hopes, is virtual reality, aka the Metaverse. He has a massive cash gusher in the form of targeted ads, so he’s using that to finance the commercialization of this nascent and immature technology. In 2014, Facebook bought VR headset maker Oculus, and in the last year or so has invested roughly $10 billion annually to build it out, which includes subsidizing the sale of headsets below cost. In other words, Zuckerberg is trying escape his social media constraints by creating a technological pivot point, a computing platform he can control. While it’s good he’s investing in a new technology, the business goal is simple. Control. The FTC cites Zuckerberg stating this explicitly.


So far, the plan seems to be working. Meta had 62% of the VR headset market in 2020, and 78% in 2021. It doubled its revenue in 2019 and then again in 2020, so that Meta’s Reality Labs segment has $2.274 billion in 2021. That’s about 2% of the firm’s total revenue, so it’s not large, but it is what Zuckerberg thinks is the future, which is why he renamed the firm Meta. Moreover, Meta has a dominant app store, and in the last few years, the corporation has also gone on an acquisition spree, buying up VR firms Sanzaru, Dawn Studios, Beat Games, Echo RV, Downpour Interactive, Onward, BigBox, Unit 2 Games, Crayta, and Twisted Pixel. These are game makers and tool makers for ‘the Metaverse,’ and Meta wants to own it all.


The argument from the FTC is fairly straightforward. The firm Meta bought - Within - produces the most popular VR workout app, which is named Supernatural. According to Within’s co-founder and CEO, “Fitness is the killer use case for VR.” Meta already has a game called Beat Saber, where users slice musical notes as they come at you, and people often use it for exercise. (Meta bought Beat Saber’s parent company, Beat Games, in 2019).

The FTC is making two claims about why this acquisition is illegal, but also implying a few others. First, “letting Meta acquire Supernatural would combine the makers of two of the most significant VR fitness apps, thereby eliminating beneficial rivalry between Meta’s Beat Saber app and Within’s Supernatural app.” That’s a straightforward structural argument. And second, if Facebook weren’t allowed to buy Within, it would produce its own direct fitness app. So this merger is eliminating potential competition. Such an argument about eliminating potential competition is something we haven’t seen for decades; this is Khan and the FTC pushing the bounds of law, which is something that is risky but ultimately necessary.

I have to differ with Matt Stoller here a bit.  I do not see this as a stretch.

Until Robert Bork's dishonest arguments and the Reagan administration eagerness to serve big business emasculated antitrust enforcement in the 1980s, this sort of enforcement did happen.

Corruption should not be treated as binding precedent.


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