The commission’s arguments play fast and loose with market definitions to conjure threats to competition where none exist.
The commission’s arguments play fast and loose with market definitions to conjure threats to competition where none exist.
I n late July, the Federal Trade Commission filed a lawsuit to stop Meta from acquiring VR fitness-app developer Within. The commission’s arguments play fast and loose with market definitions to conjure threats to competition where none exist. The suit illustrates how, under Lina Khan, the FTC has departed from established antitrust law in favor of policy that is based on hostility toward large firms. This approach will ultimately make consumers worse off.
Supernatural is a popular, although by no means dominant, VR fitness app created by Within. Users subscribe to the app for a monthly fee for guided workouts in virtual reality. Supernatural distinguishes itself from competitors with its celebrity-led workouts and a library of licensed music.
The FTC initially argues that Meta acquiring Within would create a monopoly in the market for “VR dedicated fitness apps.” This is simply not the case. Meta doesn’t offer a VR dedicated fitness app, and Supernatural is not the only app in the market. FitXR, OhShape, Holofit, VZfit, and many more apps offer users guided and gamified exercises in virtual reality. Facebook isn’t cornering anything in acquiring Supernatural. However, it is demonstrating that a VR dedicated fitness app, or its developer, can be worth $400 million.
This is important because VR dedicated fitness apps don’t just compete with one another, they also compete with other exercise products and services, such as Peloton and gym memberships. The nascent VR fitness market is tiny, worth maybe a few billion dollars. Not only is the FTC’s market analysis incredibly blinkered, but it also ignores how Within’s acquisition sends a positive signal about the burgeoning market for VR fitness apps.
The FTC tries to define a distinct market in which both Meta and Within already compete, creating a category of VR apps with incidental fitness benefits. FTC Bureau of Competition Deputy Director John Newman claims, “Meta already owns a best-selling virtual reality fitness app, and it had the capabilities to compete even more closely with Within’s popular Supernatural app. But Meta chose to buy market position instead of earning it on the merits. This is an illegal acquisition, and we will pursue all appropriate relief.”
First, merely having the talent or capital to create a competing product does not make buying instead of building a violation of antitrust law. Second, the “best-selling virtual reality fitness app” to which Newman refers to is Beat Saber, a rhythm game in which players use virtual lightsabers to slash at blocks. This broad market definition would deem any VR app involving intense physical activity a fitness app.
Beat Saber and Supernatural appeal to different users because they have different features and encourage different styles of play. More important, they have very different monetization models. While Beat Saber can be purchased outright for $30, Supernatural users subscribe to the app for $19 a month — similar to a gym membership. In the real world and in VR, gym subscriptions do not compete with toy lightsabers.
In its legal complaint, the FTC finally falls back on the argument that because Facebook is a potential entrant into the VR fitness-app market, its entry via Within (rather than via its own fitness app) lessens the market’s competitiveness. This entirely speculative, supposed harm ignores how Meta’s entry — regardless of the avenue — lends credibility to the VR fitness market. Plans to enter a market (such as a drug awaiting FDA approval) can constitute market participation, triggering certain limits on acquisitions. However, drawing the line at the capacity to enter a market — rather than concrete plans to do so — is unsupported by law or precedent. If this is grounds for blocking an acquisition, few acquisitions would succeed. As tech analyst Benedict Evans puts it, “if Facebook can’t buy Within, name a startup acquisition in the last decade that would be legal.”
Indeed, the case against the acquisition seems supported more by animosity toward bigness than existing antitrust law. Facebook or Instagram’s success in the social-media marketplace shouldn’t play a role here, but little else can explain the FTC’s interest in a small acquisition in an emerging market. Techdirt editor Mike Masnick asks, “If Oculus [Meta’s VR division] were separate from Meta and still had the same marketshare, would the FTC be stepping in to stop this deal?” All evidence points to no.
This may explain why FTC staff recommended against bringing the enforcement action. They were ignored by Lina Khan, who led the democratic commissioners in a 3–2 party line vote to challenge the merger. Prior to Alvaro Bedoya’s confirmation in May, the FTC was split evenly 2–2 between Democrat- and Republican-appointed commissioners, keeping Khan’s aspirational approach to antitrust in check. The Within lawsuit may be just the first of a wave of speculative antitrust suits from the FTC, bringing further uncertainty to emerging tech markets already roiled by rising interest rates.