As regulators block tech deals, they increasingly focus on the future
As companies like Google and Facebook grew into giants in the early 2000s, regulators largely chose not to intervene in the still young market for online services.
Now regulators have reversed course: when it comes to technology, they want to see the future and beat companies to get there.
The new approach was exemplified by British authorities’ decision on Wednesday to block Microsoft’s $69 billion takeover of video game giant Activision Blizzard. British officials said a central reason for rejecting the deal was that it could threaten competition in the nascent cloud gaming market, which allows users to stream their favorite video games.
This argument is becoming increasingly familiar. The U.S. Federal Trade Commission, which sued last year to block Microsoft’s acquisition of Activision, also raised concerns about cloud gaming competition, although the agency focused primarily on the impact on the traditional console gaming business.
Then this month, the Federal Trade Commission ordered biotech company Illumina to sell a company it had acquired, saying the deal could harm competition in the young market for cancer blood testing. In July, the FTC sued to block Facebook and Instagram owner Meta from acquiring a virtual reality startup after the agency said the acquisition would give the tech giant unacceptable power over the burgeoning metaverse.
The actions are part of the administration’s frustration with the speed at which Silicon Valley companies are snapping up new technologies, and they are trying to predict how the tech giants could harm competition in new fields and stop it before it happens.
“Enforcers have to lead the way on this,” said Diana Moss, director of the Antitrust Institute, which is partially funded by Microsoft.
Regulators are obsessed with foreseeing how tech giants can harm competition largely because they believe they have failed to do so in the past. During the 1970s and 1980s, courts and regulators made it more difficult for governments to prove that acquisitions might have unlawfully harmed potential future competition. The court also said it was difficult to sort out the uncertainties in the emerging economic sector. Regulators are therefore primarily concerned with whether a deal would harm competition in a mature market.
Whether the new forecasting strategy will work for regulators is unclear. In February, a judge ruled that the FTC sought to block Meta’s virtual reality deal. Illumina has said it plans to appeal the agency’s order to sell its blood testing company.
Still, the divining power of tech giants has become a central target of lawmakers, activists and regulators who say the companies have too much influence. In arguing that the government was effectively sleeping while Google, Amazon, Meta, and Apple rapidly grew into giants, many critics are now in government themselves and under pressure to do things differently.
As far as the biggest tech companies are concerned, they are in a race to own the next big thing. Meta is investing heavily in virtual reality, while Apple is working on augmented reality glasses. The explosion of artificially intelligent chatbots has reignited the battle between Google and Microsoft for control of online search.
The FTC and Justice Department declined to comment specifically on their interest in the emerging technology beyond their earlier statements. Microsoft declined to comment, and Britain’s Competition and Markets Authority did not respond to a request for comment.
It is well documented that the proliferation of tech giants has been accompanied by a lack of regulatory action. For example, the FTC declined to challenge Facebook’s acquisition of Instagram in 2012 and WhatsApp in 2014. Then in 2020, the agency sued Facebook over antitrust concerns, saying the acquisitions allowed it to unlawfully cut off younger competitors.
Likewise, the FTC allowed Google to buy advertising software DoubleClick in 2007. This year, the Justice Department said Google had abused its monopoly on the advertising market.
Gene Kimmelman, a former Justice Department antitrust staffer who favors greater regulation of tech giants, said regulators in the early days of the internet had been plagued by “a reluctance to predict what was going to happen.”
“Then you fast-forward 20 years and there’s a lot of critical introspection about why we don’t see what’s coming,” he said.
In 2021, regulators focus more on future markets. That year, the FTC filed a lawsuit in its internal courts seeking to block Illumina’s acquisition of Grail, which conducts blood tests to detect cancer. Judges in the internal court ruled in favor of Illumina, which had taken unusual steps to close the deal.
This month, the Federal Trade Commission voted to overturn a judge’s ruling requiring Illumina to sell Grail. Illumina plans to appeal the decision in traditional federal court.
Last year, the FTC sued to block Meta’s acquisition of Within, which makes virtual reality fitness games, saying it would harm competition in the so-called Metaverse market, where users play, work and socialize in virtual worlds. In February, a judge declined to temporarily block the completion of the deal, and the agency dropped its challenge.
In trying to block Microsoft’s acquisition of Activision — the largest consumer technology deal since AOL bought Time Warner decades ago — U.K. authorities have focused directly on the deal’s impact on cloud gaming, which is currently a niche market.
Cloud gaming could be worth $13.7 billion globally by 2026, officials said, and worry that Microsoft already accounts for 60% to 70% of the current service. Microsoft also has the tools to operate the entire cloud gaming ecosystem, from its Azure cloud system to its Xbox service, the agency said.
But cloud gaming is in its infancy, and there’s no guarantee the computing-intensive and often glitchy technology will become mainstream. Global sales of subscription services dedicated to cloud gaming are expected to hit about $288 million this year, according to London-based firm Ampere Analysis.
“They predict what’s going to happen,” said Piers Harding-Rolls, a games researcher at Ampere Analysis. “There’s some plausibility to it, but it’s hard to predict. It’s a dynamic space.”
Antitrust officials also appear to be looking ahead to other emerging technologies. At an event in March, Jonathan Kanter, the Justice Department’s top antitrust enforcer, and FTC Chairman Lina Khan said they believed AI products like ChatGPT could be potentially transformative — and ripe for domination by tech giants .
“This is another shift that we’re watching very closely,” Ms Khan said, “to make sure that if this is an opportunity for competition to actually enter the market and cause disruption, we will allow that to happen rather than an illegal market lock-in tactic. “