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On June 5, Apple announced its new Virtual Reality and Augmented Reality headset “Vision Pro” at its annual Worldwide Developer Conference. The headset, marking Apple’s first venture into Virtual Reality/Augmented Reality hardware, was promised to “blend digital content into the space around us” and connect distant people “as if you’re sharing the same space” (Apple Worldwide Developer Conference). While the showcase and subsequent marketing materials primarily highlighted the headsets use for productivity and entertainment, the inevitable integration with other Apple services raises questions about the degree of scrutiny antitrust enforcers may apply to the apps provided on the platform. Given the recent precedent from FTC v. Meta, it may be hard to evaluate how any scrutiny would be applied.
In July 2022, the Federal Trade Commission filed for an injunction to block rival Meta (producer of the Quest VR headset) from acquiring Within Unlimited, LLC – the virtual reality studio responsible for the VR fitness app Supernatural. In its complaint, the Commission wrote that the deal, if completed, would “substantially lessen competition … in the relevant market for VR dedicated fitness apps.” Specifically, the complaint addressed Meta’s strategy to have ownership over apps that “prove the value of that technology,” or compromise the primary utility of virtual reality devices (see CeCo’s previous post: “FTC v. Meta/Within”).
While Meta ultimately concluded the deal in February following a ruling against a preliminary injunction in the Northern District of California, the Court’s acceptance of the FTC’s competition theory may provide insight how courts may approach acquisitions in the app development space.[1] In his opinion, Judge Edward J. Davila, accepted the use of the potential competition theory and evaluated both the actual and perceived effects of competition. However, the court held that, the Commission failed to show effects on either.
Looking at actual potential effects on competition, the court noted that, while the plaintiffs need not prove “interdependent or parallel behavior,” the $720 Billion valued Meta did not appear to have the intent to enter the market for itself absent the acquisition. Specifically, the court stated that “financial and engineering capabilities alone are insufficient to conclude that Meta would enter the VR dedicated fitness app market.”
«If the barrier to success for the Commission was indeed in part the lack of fitness-specific internal infrastructure at Meta, it seems that – more than ever – the default position of a platform in the space looking to expand its own app offerings would be to acquire first, develop second».
This opinion raises clear questions on how the potential competition theory would ever be applied to large tech firms in the applications space (see article of Villalobos and Poblete: “Elimination of a potential competitor and organic entry”). Meta itself has asserted that apps such as Supernatural represent part of the core offerings of virtual reality platforms. In its complaint, the Commission cited an email from Meta CEO, Mark Zuckerberg, in which the executive explicitly laid out a goal for Meta to be “completely ubiquitous” in its ownership of the key offerings made by virtual reality. With Meta having roughly $37 Billion USD in cash on hand and a self-stated goal of dominance over core applications, it is difficult to believe in a lack of intent to develop a fitness app de novo absent the Within acquisition. Indeed, the court noted that Within’s Supernatural app boasted an 82.4% market share within the market for VR dedicated fitness applications. Given the clear internal mandate to dominate the space and the unquestionable means to do so, it seems not only possible, but likely that Meta would choose to develop such an app relying on its own resources and reach as a platform in the alternative scenario.
The question now becomes, if the court really believes that a claim seeking to prevent vertical integration within the broad market for applications space bears merit, what message did this ruling send to platform owners looking upstream? If the barrier to success for the Commission was indeed in part the lack of fitness-specific internal infrastructure at Meta, it seems that – more than ever – the default position of a platform in the space looking to expand its own app offerings would be to acquire first, develop second.
Meta is almost certainly not alone, and Apple is well known for keeping its key application offerings under its own roof where it can. Indeed, Apple’s very development of the Vision Pro followed the acquisitions of Akonia Holographics (augmented reality lens developer), Camerai (augmented reality developer), and Spaces (virtual reality developer). Shortly after the Vision Pro announcement, Apple also acquired virtual reality developer Mira.
However, insofar as the comparisons to the Meta/Within acquisition, Apple’s market for fitness applications is somewhat distinct. While Apple made few references towards what apps would be available on the upcoming Vision Pro, the company continues to expand the use of its self-developed Fitness+ app across multiple platforms. As part of Apple’s larger “Apple One” subscription service, the app saw significant rises in usership over the peak of the COVID-19 pandemic. If rolled into virtual reality, many of the services provided by Apple would match those provided in Supernatural including live classes, VR meditation, and other health and wellness modules.
As more information is released regarding the Vision Pro and offerings are expanded after release, it will be interesting to see how the FTC approaches Apple’s VR application market. The Commission’s focus on vertical integration between platforms and apps is likely to continue – especially within the virtual reality space. In its original complaint against Meta, the Commission noted that “function, practical, technological and price differences show that non-VR … exercise products are distinct from VR dedicated fitness apps,” and the Northern District of California seemed to agree. However, if the court’s application of the potential competition theory is any bellwether, it is difficult to see where the Commission will make inroads on acquisitions.
This February, the National Telecommunications and Information Administration (NTIA) released a report commissioned by the White House advocating for more stringent antitrust enforcement on mobile app marketplaces.[2] Among other solutions, the report advocated for Congressional action on app stores. Last Congress, the Senate Judiciary Committee passed the Open App Markets Act. The bill – not considered by the full chamber – would have placed stronger rules on the ability of companies like Apple to preference their own apps within app marketplaces but did not address the issue of vertical integration. The bill has not yet been reintroduced this Congress.
[1] FTC v. Meta Platforms Inc., 2023 U.S. Dist. LEXIS 29832 (N.D. Cal. January 31, 2023)
[2] https://ntia.gov/report/2023/competition-mobile-app-ecosystem.
