The story is part of a Recode series about technology and antitrust. In the coming weeks, we will cover Apple, Amazon, Microsoft, Meta, and Google.
Back in 2014, when Facebook acquired virtual reality headset maker Oculus, it wasn't clear what Mark Zuckerberg wanted to do with Oculus. These plans are now in the spotlight. Facebook is now known as Meta, and it's not just a social media company, it's a metacosm company. As the new name suggests, Meta wants to win in this space, just as Facebook has won in the social media space.
But a growing number of regulators, politicians and advocacy groups have expressed concern about Meta's plans in this area.
The company, formerly Facebook, spent nearly two decades consolidating its position as the world's largest social media company — in large part by acquiring other social media startups like Instagram and WhatsApp. Critics accuse Mark Zuckerberg and his company of employing a "copy-acquire-kill" strategy, putting pressure on its potential competitors to sell or risk being crushed by Facebook.
Now, some fear that Meta might adopt the same strategy in the metaverse, a concept Zuckerberg describes as "a tangible internet in which you are, not just looking at it." In practice, metaverse is a virtual space where people wearing AR/VR headsets can interact with each other's avatars, play games, hold meetings, and so on. While Meta is still in the early stages of developing futuristic hardware and software that makes it possible, the company is already a market leader. It is estimated that in the first quarter of 2021, Meta's VR headsets accounted for 75% of all AR/VR headset shipments. As Recode's Peter Kafka reports, the social media giant has been quietly acquiring companies in the metadata space, acquiring at least five AR/VR-related companies in the past year.
Regulators are watching
According to Bloomberg's January report, the Federal Trade Commission and attorneys general of several states are investigating whether Meta uses monopolistic practices in the AR/VR market. The information reports that the FTC is closely monitoring Meta's acquisition of Within, the company behind popular VR fitness game Supernatural. In a new report highlighting Meta's metadata-related acquisitions, the Antitrust Advocacy Group Tech Oversight Project claims that the company is using "its same playbook to suppress potential competition."
Meta's critics are particularly skeptical of the company's acquisition of Meta-Universe, which has been controversial in its past acquisitions, notably Instagram and WhatsApp. The FTC and 48 states and territories sued Facebook in late 2020 over the acquisitions, using internal emails to show how Facebook executives allegedly strategized to get rid of the company's competitors, including Zuckerberg, who said "buying is better than competing." The state case was dismissed (the state government is appealing the decision), but the FTC case is still ongoing. Meta now believes the government is backsliding on the deal it approved years ago.
Antitrust regulators argue that Meta is an invincible social media giant, but in recent weeks Meta has suffered a series of setbacks that could make this argument harder to hold. Meta's stock price saw a historic decline after fourth-quarter earnings showed a shrinking user growth for Facebook apps, losing more than $250 billion in market value in one day, the largest one-day decline ever for a U.S. company. Executives blamed the bad news in part on competition from TikTok, which is popular with a large number of younger users.
Meta companies are losing relevance in the social media market, which is a very big threat for the company.
"No one can put a product on the market at today's price"
For users, the debate also lies in who will control the metaverse. Many leading technologists say the rise of the metacosm is akin to the invention of the mobile web or the internet itself. If this new virtual reality is truly that powerful, whoever controls it — whether it's meta corporations, several other big tech companies, or smaller ones — could become the tech giants of the future.
Stephanie Llamas, founder of Metascope Market Research Firm VoxPop, said: "If other companies don't have the ability to compete with Facebook and their money, then you're really just giving Facebook the opportunity it creates for VR." "And that means we might miss something very important."
We don't yet know if Facebook will establish a monopoly on Metavalse, because Metavalse doesn't exist entirely. The AR/VR ecosystem that exists today is just one part of a slew of new technologies that Zuckerberg and other business leaders believe will eventually support the metaverse — perhaps the multiverse. Apple and Google are reportedly developing headsets that can compete with meta Quest, while other major players such as Microsoft and Sony are expanding their existing AR/VR product lines. Microsoft just recently spent nearly $70 billion to acquire Activision Blizzard, one of the world's largest game companies, a deal that could have a major impact on the development of metaversal exploration.
"Investing in and building the products consumers need is the key to success," said Christopher Sgro, a spokesman for Meta. "We can't build metaverses alone – collaboration with developers, creators and experts will be crucial. As we invest in metaversity, we know that every step of this journey faces stiff competition from Microsoft, Google, Apple, Snap, Sony, Roblox, Epic and others. "
Some in Washington want to act before meta has a chance to recapture an emerging market. This could require changes to existing antitrust laws, which critics argue are too narrow. Antitrust regulations have also historically relied on the cost of goods for consumers, without taking into account the modern digital economy, where services such as Facebook and Instagram are free. Whatever regulators and legislators decide to do with Meta, it will have huge repercussions across Silicon Valley.
The problem of anti-competition in the metaverse
Some competitors are already complaining that Meta doesn't compete fairly in the new metaverse market. Mark Zuckerberg has said he wants Metaspace to allow other companies to build in this area. But some indie developers argue that Meta isn't as open as it says it is.
A big problem. Some AR/VR hardware companies say Meta discounts its VR headsets to the point where it's hard for small startups to compete. Meta's Quest 2 headset is currently priced at $299, which is a few hundred dollars less than any similar device on the market. The FTC is reportedly investigating the possibility of Meta selling Quest helmets at a loss in an attempt to depress competitors and drive them out of the market, a practice known as predatory pricing.
Stan Larroque, founder of Paris-based AR/VR startup Lynx, told Recode that "no one has been able to launch a product with the same features on the market at their price today." The company plans to release its first consumer helmet for $700, and Larroque says it will have more advanced features than quest 2. "I'm not Mark Zuckerberg. I can't sell my product at a loss."
Larroque added that Meta had tried to poach his team of engineers with high salaries, but his employees stayed. Larroque also said he has spoken to various regulators and lawmakers in the United States and Europe about Meta's business practices. Meta declined to comment on Larroque's claims.
But Meta's reduction in the price of its headphones doesn't necessarily violate antitrust laws. Predatory pricing cases are very difficult to prove. Current law stipulates that it is illegal only if the dominant company makes under-cost pricing in order to bankrupt its competitors, so that it can raise the price above the market level after having a monopoly position to make up for the loss. Courts generally hold that low prices are good for consumers, even if they come at the expense of competitors.
Another topic under scrutiny is whether Meta's metaverse is truly open to third-party software developers. Currently, Meta operates an AR/VR app store — similar to Apple's App Store or Google's Play Store — where developers can create software for their headsets. Like Apple and Google, Meta takes a 30% share of any purchase in the app. Meta also requires users to log in with a Facebook account, a requirement that raises concerns that the company is creating a walled garden. (In the wake of an outcry from many gamers, Meta says it plans to end facebook account demands.)
The developers offered other opinions on how Meta runs its app store. Some have accused the company of blocking rival apps from being sold in Meta's Quest AR/VR app store, or of copying competitors directly. For example, Meta's Horizon Worlds social space is similar to the popular game Rec Room, while the company's "Horizon Workrooms" virtual work conference software looks a lot like a collaboration app from a company called Spatial. (Spatial later turned to NFTs rather than VR; Jacob Loewenstein, the company's head of growth, told Recode that the reason for the shift was not because Meta copied Spatial, but because of the growing business opportunities around NFTs, artists, and creators.)
Meta has also acquired some of the most popular third-party games for Quest Headset, including not only Supernatural but also Beat Saber, one of the most popular games in vr and currently ranked as the best-selling game in Meta Quest's app store.
"I've talked to a lot of developers who feel like they don't even have a chance to get into the market because Facebook is buying the technology they're trying to develop," voxPop's Llamas said. On the other hand, Meta's AR/VR could bring benefits to the industry, she added, as the company can pour resources into developing startups and hardware to expand to more people.
As for concerns about whether its AR/VR platform is truly open to third-party developers, Meta noted that the company still allows the games it acquires to run on third-party game systems.
With AR/VR becoming a more mainstream technology — and Quest helmets taking a bigger market share — whether Or not Meta gives its product an edge will be a bigger battle.
How Meta became an antitrust target
The metacosm is still largely part of the hypothetical future, making allegations of Meta monopolies now difficult to prove. While Meta has had disputes with the FTC in the past — including a $5 billion fine a few years ago for violating Facebook's privacy rules — the agency allowed it to acquire companies that helped it become the dominant force it is today. The FTC is now rethinking this issue.
In the lawsuit against Meta, the FTC and the Attorney General argued that the company's acquisitions and anti-competitive practices helped it dominate social media and protect it from competition in emerging areas such as mobile and information that it could not do on its own. Other companies have found that their access to Facebook's platform is restricted or restricted if they work with or are competitors themselves.
The FTC is now demanding the rescind of acquisitions of Instagram and WhatsApp — as well as any other assets found to be illegally harming competition--。 This would effectively dismantle the company now known as Meta.
Meta said the FTC has not proven that Meta has a monopoly on social media. Jennifer Newstead, vice president and general counsel at Meta, said the FTC "cleared these acquisitions a few years ago" and that the administration "wants to do it all over again now, sending a chilling warning to U.S. businesses that no sale is final." Meta scored a victory in the case when the judge dismissed the state lawsuit and said the FTC needed to come up with better reasons to prove Meta's monopoly position on social media. The FTC has resubmitted a longer, more detailed complaint that has so far been allowed to move forward under the objections of Meta.
Meanwhile, the rest of the world may have lost its mind about The Meta merger. The company tried to buy Giphy (the generator and database of GIFs), but was opposed by the UK's antitrust regulator, which fined the company millions of dollars and ordered it to sell Giphy (Meta has appealed and the acquisition was shelved until the issue is resolved). But after more than a year of scrutiny, Meta's $1 billion acquisition of customer service software company Kustomer finally went smoothly after Meta received approval from regulators in the UK, US and EU, so not every Meta acquisition was blocked.
In any case, Meta insists it has a lot of competitors, an argument that could be confirmed by its recent poor quarterly earnings.
"If Facebook is losing market power, it will be related to the FTC lawsuit," said Michael Carrier, a professor at Rutgers Law School. "The lawsuit questions not only Facebook's actions at the time of the acquisition, but also the behavior that continues to this day."
The history of antitrust cases against large disruptive technology companies shows that governments don't have to win to have an impact. The Justice Department sued IBM and Microsoft for monopolizing the mainframe and operating system markets, respectively. The cases were eventually dropped or settled, but during the technological change, the companies were mired in years of litigation that allowed competitors to emerge.
Meta's ambiguous future
The IBM and Microsoft cases show how antitrust actions can distract or prevent tech companies from entering new markets; in these cases, personal computing and mobile internet, respectively. It's too early to say whether Meta will be similarly affected.
The cases also show the gap between the fast-moving tech industry and the government response, which is notoriously slow. Antitrust cases can take decades to resolve. Attempts to reform the legislation may take longer.
"There's a real problem in Washington, we're always fighting for the sake of fighting five years ago, or sometimes we're fighting with a battle from ten years ago. Charlotte Slaiman, director of competition policy at the Public Knowledge Group, said: "It makes it really hard for us to get ahead of things.
Nor did the FTC ignore the metacosm. When the agency resubmitted its complaint against Meta last year, it included a new chapter on the metaverse. The agency noted that as long as the company faces competition from new technologies, Meta's model of cutting off developers working with competitors or its applications directly competing with Meta's services "could" happen. The metacosm is cited as an example of these new technologies.
That doesn't mean the agency can do anything about Meta and its surreal ambitions anytime soon. Antitrust cases are already hard to prove in mature markets, let alone emerging markets. But it could be the Federal Trade Commission or the Justice Department's antitrust unit — which is said to have been investigating Facebook's VR acquisition back in 2020 — and now both are led by strong critics of big tech companies' power over the economy.
"The VR market is too new and the unknown argument may have worked a few years ago, but today, it can provide a tantalizing test case for institutions that intend to show that they will vigorously enforce antitrust laws against 'nascent competitors,'" Carrier explains.
The FTC may get some help from lawmakers. A bipartisan antitrust bill specifically targeting big tech companies and digital platforms is under review in Congress. One such bill, the Platform Competition and Opportunity Act, would prohibit dominant firms from acquiring competitors — or potential competitors — to strengthen their monopoly power. Stacy Mitchell, co-director of the Local Self-Reliance Institute, said that if the bill is passed, Meida may not be able to continue to make acquisitions in certain markets, including metadata.
But the Platform Competition and Opportunity Act appears to be stalling in Congress, where both houses have yet to vote on any big tech antitrust bills. The bill's Senate co-sponsors, Senators Amy Klobuchar and Tom Cotton. Amy Klobuchar and Tom Cotton did not comment on Recode's progress, and advocates are increasingly concerned that there is too little time left for the session.
Meanwhile, the FTC and the Department of Justice are currently working on new merger guidelines that the agencies say will better handle modern markets and issues to consider when deciding whether to approve mergers. But these guidelines will not be completed until at least a year later.
There are other hurdles when it comes to regulators' plans to control Meta. With no increase in funding from Congress, the FTC has limited resources and has had to choose to fight, especially when it comes to fighting large corporations, including other big tech companies, that have the ability to assemble a team of lawyers to fight back.
There's still a lot we don't know about how metavalse will evolve. Meta's plans have the potential to fail not only because of regulation, but also because of commercial realities.
Leaving aside the debate about tech giants competing in the metacosm, the masses may not want to participate in this alternative reality at all. Zuckerberg's announcement of the metaverse has caused a great deal of confusion and skepticism. Let's not forget that a decade ago, Google Glass — the company failed in its early attempts at augmented reality headsets because it wasn't loved by everyday users, many of whom thought it violated privacy. According to a July Morning Brew-Harris survey, only about a quarter of Americans have ever used an AR or VR headset, and only 28 percent said they were excited about the technology.
And don't forget about Meta's history of privacy issues and content moderation issues that have led to users losing trust in the company. That means people may be reluctant to give Meta more access to more personal data that AR/VR headsets can collect, such as our eye movements and facial expressions.
No matter how successful Meta's business plans in the metaverse are, it won't help in the face of its head regulatory threats. At a critical time when Meta needs to reinvent itself, regulation can be a drag on it. What's clear is that regulators are trying to get ahead of the metaverse, and Meta won't be able to escape as easily as it has in the past.