Why the Government is Right to Block the Startup Sales to Big Tech – Analytics India Magazine

Meta was all set to acquire Within, the company behind Supernatural, the VR fitness app until the Federal Trade Commission (FTC) stepped in and filed a lawsuit to block Metas planned acquisition.

Considering Metas stronghold on the VR Market, the FTC alleges that the social media giant wants to monopolise the Metaverse.

But, setting aside the legal and regulatory aspects, these recent developments have led many to questionShould the government really block startups sales to big tech?

Should the government intervene?

Firstly, any government intervention in a business deal is seldom not seen as a good thing. A free market, in theory, works well when government interventions are limited to the minimum.

But, when it comes to big techs and the space in which they operate, there is little to no competition. Thats because companies like Google and Meta have acquired a dozen companies each since their inception. Some of these acquired companies were offering products and services similar to these big techs.

FTC blocked Metas acquisition of Within because they believe it serves a larger purpose for Meta. Meta is betting on the Metaverse and VR technology, and according to the FTC, acquiring Within would help Meta build and ultimately control a VR Metaverse.

Meta already owns a best-selling virtual reality fitness app, and it has the capabilities to compete even more closely with Withins 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, FTC Bureau of Competition Deputy Director John Newman said.

In response, Meta said that the FTCs case is based on ideology and speculation, not evidence.

However, the FTC does have a point. Meta currently controls almost every aspect of the VR industry. The Oculus Quest 2 by Meta is already the top-selling VR headset. In Q1 2021, headsets accounted for 75 per cent of all VR headset shipments. Its VR app, Beat Saber, is also one of the most popular VR apps of all time. Meta has also acquired five VR Game studios in the last couple of years.

According to the FTC, Facebooks quest to dominate the VR market began when it acquired Oculus VR in 2014.

Although the Metaverse is still considered relatively new and unsophisticated in its current form, Gartner predicts that around 25 per cent of people would spend at least an hour a day in the Metaverse by 2026. It is likely that with such predictions for the future of the Metaverse, itd be a major cause for concern if Meta somehow manages to control the whole VR market.

In 2013, Google acquired Waze for almost a billion dollars even though it owns the most popular mapping app. What made Waze stand out was the way it integrated data from other drivers. Google Maps did not have these features. However, following its acquisition, most of Wazes features were integrated into Google Maps.

At present, Google Maps holds nearly 80 per cent of global market share in the web mapping industry. The question then ariseswhat if Googles acquisition of Waze was blocked in 2013? Would we have witnessed Google compete with Waze in the mobile app web mapping industry?

Competition is a good thing

Regulating big tech is not an easy task. Even though governments across multiple jurisdictions are working on policies and regulations in this regard, another way to tackle their growing dominance could be to encourage competition. And protecting startups from being acquired could be the first step in harnessing a competitive ecosystem.

For instance, in India, the Competition Commission of India (CCI) is keeping a close watch on big tech companies. Ashok Kumar Gupta, chairman of CCI, on multiple occasions has referred to the big tech as centres for entrenched and unchecked dominance. They are currently investigating Apple and Google for their app store policies, specifically their payment methods, which could harm local app developers.

As challenging as it may be to compete with big techs, current trends suggest that TikTok might emerge as a competitor against big tech. It was recently revealed that nearly 40 per cent of young users preferred to use TikTok over Google for search purposes.

TikToks growing influence has also forced YouTube (owned by Alphabet) to introduce Shorts- a short video feature similar to TikTok.

In 2020, TikTok overtook Meta to become the most downloaded app. Reportedly, Facebook is also building its feed to look much like TikToks. Meta had already incorporated Reels, a short video feature similar to TikTok, both on Instagram and Facebook. Further, Instagram had already transformed its interface to appear as close to TikTok as possible.

Even though TikTok is not seen as a direct competitor to big tech yet, its growing popularity is certainly making big tech jittery.

A market perspective

While competition in a market is healthy, not everyone agrees that blocking big tech to acquire startups is a good thing.

Aaron Levie, CEO at Box, believes that from a market perspective, If the government blocks big tech companies from buying small startups in nascent markets, all that will happen is there will be fewer startups over time because investors cant underwrite the risk. This is bad for innovation, and ironically good for the big tech companies.

But should venture capitalists (VCs) only invest in startups that have the potential to be acquired by big tech tag? Ideally, investment in a company should be driven by the quality of its product or service and the potential growth it may witness in the future. When it comes to cashing in on their stakes in the company, VCs should help the company turn a profit. That would automatically lead to more private investments or even an IPO. This would ensure continuity of the business they once placed their faith and money in.

Sridhar Vembu, CEO at Zoho, also disagrees with Levies thesis and believes asking the regulators to go easy on big tech acquisitions helps increase the dominance that big techs enjoy and does nothing to reduce their monopolistic hold. This concentration of power and wealth in big tech mirrors the rise in inequality in the broader society, Vembu added.

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Why the Government is Right to Block the Startup Sales to Big Tech - Analytics India Magazine