Shots Fired at Facebook’s VR Monopoly

Shots Fired at Facebook’s VR Monopoly
Contributor: Ethan Gach

It’s been a very bad year so far for Meta, the company formerly known as Facebook, in ways extremely unique to being one of the biggest tech companies in the world. Despite still making almost $US7 ($10) billion in profit in recent months, TikTok is eating its lunch, the stock price is in shambles, and even the Kardashians have revolted. Now Meta is also being sued by the Federal Trade Commission over its monopoly in VR tech. It’s a shocking case that could have consequences for other big acquisitions in the realm of gaming.

Filed on the same day as Meta’s latest bad earnings report, the FTC is seeking an injunction against the company’s attempted takeover of Within, a VR startup with a hit workout app called Supernatural. The agency literally called it an “illegal acquisition to expand [Meta’s] virtual reality empire” in its press release. Meta responded, claiming in a statement that the FTC’s argument is based on ideology instead of evidence, and will hurt future developments in VR.

“It’s a riskier case, but one they think is worth bringing because if they succeed it will help bring the frontier of enforcement outward,” William Kovacic, a former chairman of the FTC, told The New York Times on Wednesday. The case will be hashed out in the weeks and months ahead in the Northern District Court of California.

Why the FTC’s Meta lawsuit came as a Surprise

Considering Within would barely even register as a rounding error on the billions Meta currently invests annually into VR development, it seemed like a weird deal for the FTC to go beast mode over. But for antitrust advocates, it’s a perfect target for rolling back the clock on years of lax enforcement. After letting Meta gobble up competitor after competitor (most notoriously Instagram and WhatsApp), the FTC has to start somewhere.

“Because of those failures and others, the FTC (and DOJ) is now scrambling to play catch-up, spending enormous time and resources on lawsuits to try to unwind deals and stop monopoly abuses,” wrote Ron Knox, a researcher at the anti-monopoly Institute for Local Self-Reliance, in a thread yesterday. “[FTC Chair] Lina Khan, in this lawsuit against the Within merger, has said: no more.”

In 2020, Meta controlled 62% of the market for VR headsets. In the first quarter of 2021, its Oculus headset shipments made up 75% of the market (and just this week it announced it would hike the price by $US100 ($139)). This funnels users into the Oculus store for VR apps. One of them is Supernatural, a super-popular immersive fitness experience that lets you box, meditate, and do yoga in virtual reality. Meta’s philosophy, like other big tech companies, has long been “if you can’t beat’em, buy’em,” and its VR business is the clearest example of that.

The headset technology, Oculus Rift, was originally developed by Doom lead designer John Carmack and others, and paid for in part by crowdfunding on Kickstarter. In 2014 Meta bought it for $US2 ($3) billion. One of the most popular VR games ever has been Beat Saber. Meta bought it in 2019. The company has since snatched up a bunch of other VR studios.

“If Meta is allowed to buy Within, that competitive pressure will slacken,” the FTC wrote in its announcement yesterday. “That lessening of competition violates the antitrust laws.” The agency goes on to argue that the trend itself discourages other creators from innovating in the space.

What it could mean for gaming

It’s hard not to see some parallels to Microsoft’s current bid to buy Activision Blizzard. The company’s been on its own spending spree, gobbling up studios to feed the neverending content furnace that is Game Pass. In some ways, the strategy dates back to buying Minecraft in 2014. But the acquisition of Obsidian, InXile, Ninja Theory, and others in recent years shows buying content instead of making its own wasn’t a one-off. With Bethesda, it acquired hits like Fallout, The Elder Scrolls, and Doom. With Activision Blizzard it’ll acquire Call of Duty, Diablo, and Candy Crush.

One key difference is that Microsoft doesn’t have the same stranglehold on gaming hardware that Meta has on VR. The Xbox maker has also gone out of its way to try to reassure the FTC that nothing it’s doing is anti-competitive. In February, Microsoft committed to a list of “Open App Store Principles” and signalled to the FTC that it wouldn’t make games like Call of Duty and Overwatch platform exclusives. In June it pledged to remain neutral on union activity, and convinced the Communication Workers of America to voice its support for the takeover bid.

Notably, Sony’s acquisition of Bungie also just went through without a hitch. That could be because the FTC is focused on conventional tech deals at companies like Apple and Google (the agency is also currently investigating Amazon). At the same time, if the Activision Blizzard takeover goes through, it would be the largest acquisition in tech history. Weirdly, Microsoft agreed to pay $US95 ($132) a share, but Activision Blizzard stock is still only trading at $US79 ($110). The deal is expected to close by June 2023, and Microsoft has reportedly already shared all of the information the FTC was looking for. Once Activision Blizzard does the same, the agency will have 30 days to complete its review.