Meta is fighting the US Antitrust Agency over the future of virtual reality

SAN JOSE, CA/WASHINGTON, Dec. 8 (Reuters) – The Biden administration on Thursday accused Meta Platforms Inc. (META.O) To try to buy her way to dominance in the metaverse, she starts a high-profile trial to try and stop the parent of Facebook from buying virtual reality app developer Inside Inc.

The FTC sued in July to stop the deal, saying Meta’s acquisition of Takedown would “create a monopoly” in the virtual reality (VR) fitness app market. She has asked the judge to issue a preliminary injunction that would stop the proposed transaction.

In an opening statement, FTC attorney Abby Dennis said the acquisition is part of Meta’s attempt to acquire new and more diverse VR users, including customers of popular subscription-based virtual reality app Supernatural inside.

That would complement the Meta’s existing VR users, who tend to skew young and male, and be more game-centric, Dennis added.

“Meta could have chosen to use all of its massive resources and capabilities to build its own VR fitness app, and it was planning to do that before it acquired Inside,” Dennis said, referring to a plan from early 2021.

The plan, Operation Twinkie, involved expanding a rhythm game app called Beat Saber that the company acquired in 2019 into the fitness space through a proposed partnership with digital fitness company Peloton. (PTON.O)Dennis said.

It cited an email from CEO Mark Zuckerberg in which he said he was “optimistic” about fitness and described the proposed partnership with Peloton as “fantastic”.

Attorneys for Meta and Inside argued that the FTC did a poor job of identifying the relevant market and said the companies compete with a range of fitness content, not just fitness apps intended for virtual reality.

Meta’s attorneys have also disputed that plans for Meta’s VR fitness app have gone beyond low-level “brainstorming” and have argued that the FTC underestimated the competition in the market it has identified, citing the potential of fellow tech giants Apple Inc. (AAPL.O)Alphabet Inc (GOOGL.O) Google and Bytedance to join the fray.

Rade Stojsavljevic, who runs the Meta’s in-house VR app developer studios, testified that he suggested the relationship between Beat Saber and Peloton but never developed a formal plan and never discussed the idea with either party.

Internal documents from early 2021 shown in court showed Stojsavljevic proposing to acquire VR developers before they were “cannibalized” by competitors and discussing pressure from Zuckerberg to “act aggressively” in response to reports of a possible Apple headset.

The trial, scheduled through December 20, will be a test of the FTC’s bid to head off what it sees as a repeat of the company’s acquisition of smaller potential rivals and effectively buy its way to dominance, this time in its infancy. Virtual reality and augmented reality markets.

The FTC is separately trying to force Meta to unwrap its two previous acquisitions, Instagram and WhatsApp, in a lawsuit filed in 2020. Both were in relatively new markets at the time of the companies’ purchase.

Pressure to produce HIT applications

A government victory could weaken Meta’s ability to maneuver in an emerging technology space — virtual reality and augmented reality — that Zuckerberg has identified as “the next generation of computing.”

If prevented from making acquisitions in the space, Meta will face greater pressure to produce its own successful apps and forgo the gains — in terms of revenue, talent, data, and control — associated with bringing innovative developers into the company.

Within the developed Supernatural, which it advertises as a “complete fitness service” with “expert trainers,” “beautiful destinations,” and “workouts designed for the best music available.”

It’s only available on Meta Quest devices, headsets that offer immersive digital visuals and audio that market research firm IDC estimates account for 90% of global shipments in the virtual reality hardware market.

The majority of the over 400 apps available in the Quest App Store are produced by third-party developers. Meta owns the most popular virtual reality app in the Quest App Store, Beat Saber, an app it has been considering expanding through the Peloton partnership.

The social media company agreed to buy Within in October 2021, the day after it changed its name from Facebook to Meta, signaling its ambition to build an immersive virtual environment known as a metaverse.

Zuckerberg will be a witness at the trial. Other potential witnesses are Inside CEO Chris Milk and Meta CTO Andrew Bosworth, who runs the company’s Reality Labs unit.

The trial is in the US District Court for the Northern District of California.

Reporting by Diane Bartz in Washington and Katie Paul in San Jose, Calif.; Editing by Alexandra Alper, Matthew Lewis and Cynthia Osterman

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