Likelihood, Feasibility, and Potential Competition: The Meta-Within Acquisition and The Future of Tech Antitrust

In 2014, Facebook (now Meta) acquired two burgeoning social media firms, WhatsApp and Instagram, with no FTC or DOJ scrutiny. People celebrated the acquisitions and the lack of regulatory scrutiny. In the years since, the negative externalities from Meta’s monopoly have led to the Cambridge Analytica scandal, the use of WhatsApp in violence in Asia, and the harmful effects of Instagram on teenagers have led to experts and members of the public calling for the mergers to be nullified, an unscrambling of the eggs as it is called. Meta’s near monopoly in online messaging left users with nowhere else to go and limited investments in safety protocols by the parent company. Now, in 2023, a ruling by the San Jose District Court approving Meta’s acquisition of Within, a VR fitness application, has potentially set the table for another digital monopoly, this time in the metaverse.

Meta and Within signaled their intent to merge in October 2021, and the FTC subsequently raised its objections in July 2022. In the Court’s view, the case hinged on Meta’s ability to enter the VR fitness app market absent the acquisition, which the Court felt would not happen. The Court’s judgment hinged on the likelihood and feasibility of Meta entering the VR fitness application market absent the acquisition, which the Court concluded was low. In going through the facts, the Court acknowledged that Meta had previously looked to enter the market through a partnership with Peloton and by using Beat Saber to create a competing VR fitness app but felt that Meta did not have the ability to create a VR fitness application on its own. Furthermore, the Court also thought that the FTC’s use of the potential future competition doctrine did not meet the threshold of evidence needed to show the Court that it could succeed in future hearings. This article’s analysis will focus on the likelihood of Meta’s entry into the market, the feasibility of such an entry absent the acquisition, and the FTC’s strategy to use the potential competition doctrine.

To analyze Meta’s likelihood of entering the relevant market, we need to take a step away from the economics of the issue and examine the business rationale for a potential entry with or without the acquisition. The metaverse, a least as implemented by Meta, is struggling to achieve lift-off, with most of the “worlds” deserted with few regular users. VR fitness applications stand out as they actually represent oasis in the digital desert, which as the FTC showed is steadily growing its user base. Furthermore, this market has a more diverse customer base, skewing older and female, than the general users of the metaverse. Meta highly values access to this stable and diverse data at a time when the company is actively trying to improve its offerings and attract advertisers to their platform. The VR industry is nascent, both in application and hardware. Essentially, Meta is trying to ensure their Quest headset is the industry standard. Collecting VR fitness application data allows Meta to access a greater variety of users and their data, which can improve the functionalities of the Quest headset and handheld accessories. Establishing the dominant design for the metaverse hardware market is a crucial element of Meta’s long-term success. Leveraging the Within and nine previous metaverse application acquisitions, Meta can create bundles for its headset erecting higher barriers to enter the VR market at a time when Apple is ready to launch its own competing product.

The Court also analyzed whether Meta could feasibly enter the VR fitness application market.  Questioning the feasibility of entry to a nascent market of a multi-national organization valued at over $500 billion may seem odd. A simple question could just be “why can Meta not simply hire a few PhDs and buy the appropriate equipment and green screens to create VR fitness apps?” However, the law does not limit feasibility analysis to whether a company can unilaterally enter the market but whether such an entry is beneficial to itself and society. In conducting this analysis, the Court seemingly relies on the words of Robert Bork in his seminal book, The Antitrust Paradox. Bork argues that if an acquisition is the easiest market entry method, forcing a firm to bypass this route and grow internally can harm the firm and society, assuming the costs of internal growth are significantly greater than the acquisition. While one can argue that developing internally would cost less than $400 million in real terms, the economic cost of developing, testing, deploying, and scaling the application and the delay in achieving scale in the market would eventually eclipse the cost of acquisition. So the Court, in its analysis, correctly states that while Meta could feasibly enter the market, the economics render doing so infeasible.

The FTC’s use of the potential future competition doctrine provides the most interesting view for future jurisprudence. This doctrine has only been discussed but never sanctioned by the Supreme Court but has been used by appellate courts quite regularly with different standards. The FTC’s use of this doctrine highlights their endeavor to push the envelope to regulate the M&A activities of Big Tech firms; however, using this doctrine poses the major challenge of antitrust time travel and predicting the outcome of a merger or acquisition absent any causal data.

The Court stated that the doctrine aimed to prevent the loss of future competition in the market, but the lack of Supreme Court guidance left the adjudicating Court to consider differing standards within the same doctrine. The Court eventually adopted the Fifth Circuit’s “reasonable probability” standard, which assessed whether the defendant’s probability of entering the market absent the acquisition exceeded 50%. In analyzing the objective evidence, the Court felt Meta lacked the valid incentives to enter the market and the short-term capabilities to succeed.

Meta’s previous actions in the then-emerging messaging and photo sharing markets clearly informed the FTC’s use of the potential competition doctrine as the offensive argument for this case. Since acquiring WhatsApp and Instagram, Meta has consistently tried to exercise market power to ensure its status as the preeminent social media and chat application. The most obvious example of this is the integration of Facebook Messenger into Instagram chats such that users would remain on the Facebook platform and prevent ongoing and future calls for divestiture. The FTC has learned from its mistake in the past and tried to suggest that Meta, through this and other acquisitions, would work to raise barriers to entry to great consumer detriment.

However, unlike hindsight, foresight remains speculative in the antitrust market. One could argue that Meta, with its means, and Within, with its skillset, could further concentrate an already concentrated market. Conversely, one could also argue that Meta’s means in the market could spur innovations that improve the service offerings at large. Furthermore, Meta’s presence in the market could prompt other major rivals to invest in competing applications to further enhance the race for innovation or lead to a duopoly when another big tech firm tries to acquire a competitor to Within.

The Meta-Within case showed us that the FTC, and potentially the DOJ, are willing to try new ideas to halt the march of big tech acquisitions in the market. With cases against Google for monopolizing ad services and the search engine market and against Microsoft for the Activision acquisition, the future of technology antitrust is potentially competitive but hard to predict accurately.