SAN JOSE, Calif./WASHINGTON, Dec. 8 (Reuters) – The Biden administration on Thursday accused Meta Platforms Inc (META.O) of trying to buy its way to dominance in the metaverse, launching a high-profile lawsuit to trying to prevent the Facebook parent from buying virtual reality app developer Within Inc.
The FTC sued in July to stop the deal, saying Meta’s acquisition of Within would “tend to create a monopoly” in the virtual reality (VR) fitness app market. It has asked the court to grant an interim order to halt the proposed transaction.
In an opening statement, FTC attorney Abby Dennis said the acquisition of Within was part of Meta’s bid to acquire new and more diverse virtual reality users, including customers of Within’s popular subscription-based virtual reality workout app Supernatural.
That would complement Meta’s existing virtual reality users, who tend to skew young and male and are more focused on gaming, Dennis added.
“Meta could have chosen to use all of its massive resources and capabilities to build its own dedicated VR fitness app, and it planned to do that before acquiring Within,” said Dennis, pointing 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 gym through a proposed partnership with digital fitness company Peloton (PTON.O), Dennis said.
She quoted an email from Chief Executive Mark Zuckerberg in which he said he was “bullish” about fitness and called the proposed partnership with Peloton “great.”
Lawyers for Meta and Within argued that the FTC had poorly defined the relevant market, saying the companies compete with a range of fitness content, not just VR-specific fitness apps.
Meta’s lawyers also disputed that Meta’s plans for a VR fitness app had gone beyond low-key “brainstorming” and argued that the FTC underestimated the competition in the market it defined, citing the potential for fellow tech giants Apple Inc (AAPL.O), Alphabet Inc’s (GOOGL.O) Google and Bytedance to join the fray.
Rade Stojsavljevic, who manages Meta’s in-house VR app developer studios, testified that he suggested the partnership between Beat Saber and Peloton, but did not develop a formal plan and never discussed the idea with either party.
Internal documents from early 2021 shown in court showed that Stojsavljevic proposed acquisitions of VR developers before they could be “cannibalized” by competitors and that he discussed pressure from Zuckerberg to “get aggressive” in response to reports of a future Apple headset.
The trial, scheduled to run through Dec. 20, will serve as a test of the FTC’s bid to fend off what it sees as a repeat of the company taking over small emerging would-be rivals and effectively buying its way to dominance. times in the burgeoning virtual and augmented reality markets.
The FTC is separately trying to force Meta to reverse two previous acquisitions, Instagram and WhatsApp, in a lawsuit filed in 2020. Both were in relatively new markets at the time the companies were purchased.
PUSH TO PRODUCE HIT APPS
A government win could curtail Meta’s ability to maneuver in an area of emerging technology — virtual and augmented reality — that Zuckerberg has identified as the “next generation of computers.”
If Meta couldn’t make acquisitions in the space, it would face greater pressure to produce its own hit apps and would give up the benefits — in terms of revenue, talent, data, and control — that come with by bringing in innovative developers.
Supernatural developed within, which is advertised as a “complete fitness service” with “expert coaches,” “beautiful destinations,” and “workouts choreographed to the best music available.”
It’s only available on Meta’s Quest devices, which are headsets that provide immersive digital images and audio that capture 90% of global shipments in the virtual reality hardware market, according to market research firm IDC.
Most of the 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 Sabre, the app it considered expanding with the Peloton partnership.
The social media company agreed to buy Within in October 2021, a day after it changed its name from Facebook to Meta, signaling its ambition to build an immersive virtual environment known as the metaverse.
Zuckerberg will testify in the trial. Other potential witnesses include Chris Milk, CEO of Within, and Andrew Bosworth, Chief Technology Officer of Meta, who heads up the company’s metaverse-focused 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, California; Edited by Alexandra Alper, Matthew Lewis and Cynthia Osterman
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