May 31, 2023

As companies like Google and Facebook grew into giants in the early 21st century, regulators largely chose not to interfere in the fledgling online services market.

Now regulators have reversed course: When it comes to technology, they want to look into the future and beat companies to get there.

UK authorities’ decision on Wednesday to block Microsoft’s $69 billion bid for video game giant Activision Blizzard was an example of the new approach. UK officials said a key reason for rejecting the deal was how it could threaten competition in the burgeoning cloud gaming market, which allows users to stream their favorite video game titles.

That argument is starting to make sense. The U.S. Federal Trade Commission, which filed a lawsuit last year to block Microsoft’s deal with Activision, also raised concerns about competition in cloud gaming, though the agency focused primarily on the impact on traditional console games.

This month, the FTC ordered the biotech company Illumina to sell a company it acquired because the deal could hurt competition in the fledgling cancer blood screening market. And in July, the FTC filed a lawsuit to stop Meta, the owner of Facebook and Instagram, from buying a virtual reality start-up, saying the purchase would give the tech giant unacceptable leverage over the nascent metaverse.

The actions are part of how governments, frustrated with the speed at which Silicon Valley companies are rushing to dominate new technologies, are trying to predict how the tech giants could hurt competition in new areas and stop it before it happens.

“Enforcers need to be at the forefront of this,” says Diana Moss, the president of the American Antitrust Institute, which receives some money from Microsoft.

Regulators’ fascination with foreseeing how the tech giants might hurt competition stems largely from their perceived failure to do so in the past. In the 1970s and 1980s, courts and regulators made it more difficult for governments to prove that an acquisition could illegally harm potential future competition. Courts have also said it is difficult to fathom the uncertainty of young segments of the economy. Thus, regulators largely focused on whether a deal could harm competition in mature markets.

Whether the new predictive approach will work for regulators is unclear. In February, a judge ruled against the FTC’s attempt to stop Meta’s virtual reality deal. And Illumina has said it plans to appeal the agency’s order to sell its blood testing business.

Yet predicting power plays by the tech giants has become a central goal for lawmakers, activists and regulators who say those companies have too much clout. After arguing that governments basically slept in the driver’s seat while Google, Amazon, Meta and Apple grew into giants, many critics are now in government themselves and under pressure to do things differently.

For their part, the biggest tech companies are vying for ownership of the next big thing. Meta is investing heavily in virtual reality and Apple is working on augmented reality glasses. The explosion of artificial intelligence chatbots has reignited the battle between Google and Microsoft for control of online search.

The FTC and the Justice Department declined to comment specifically on their interest in emerging technologies, beyond previous statements. Microsoft declined to comment and the UK’s Competition and Markets Authority did not respond to a request for comment.

The lack of regulatory action as the tech giants mushroomed has been well documented. For example, the FTC declined to challenge Facebook’s purchase of Instagram in 2012 and WhatsApp in 2014. Then in 2020, the agency sued Facebook over antitrust issues, arguing that those acquisitions could have illegally cut off young competitors.

Similarly, in 2007, the FTC allowed Google to buy DoubleClick advertising software. This year, the Justice Department said Google had abused a monopoly in the advertising market.

Gene Kimmelman, a former member of the Justice Department’s antitrust staff who favors more regulation from the tech giants, said regulators in the early days of the internet were gripped by a “reluctance to predict what would happen.”

“Then you fast-forward 20 years, and there’s a lot of critical introspection about why we didn’t see what was coming,” he said.

By 2021, regulators were looking more to future markets. That year, the FTC sued its internal court to prevent Illumina from buying Grail, which does blood tests to detect cancer. The internal court judge ruled in favor of Illumina, which had already taken the unusual step of closing the deal.

This month, the FTC voted to overturn the judge’s ruling and demanded that Illumina sell the Grail. Illumina plans to appeal that decision in a traditional federal court.

Last year, the FTC filed a lawsuit to stop Meta from buying Within, which makes a virtual reality fitness game, saying it would hurt competition in the market for the so-called metaverse, where users play, work and socialize in virtual worlds. . In February, a judge refused to temporarily halt the closing of the deal, and the agency dropped its challenge.

In an effort to block Microsoft’s purchase of Activision – the largest consumer tech deal since AOL bought Time Warner decades ago – UK authorities focused entirely on the deal’s impact on cloud gaming, which is currently a niche market.

The officials said cloud gaming could be worth $13.7 billion globally by 2026 and worried that Microsoft already accounts for 60 to 70 percent of current services. Microsoft also has the tools to manage an entire cloud gaming ecosystem, from the Azure cloud system to Xbox services, the agency said.

But cloud gaming is still in its infancy and there’s no guarantee that the technology, which requires massive amounts of computing power and often has glitches, will go mainstream. According to Ampere Analysis, a London-based company, revenue from cloud gaming-only subscription services is expected to reach approximately $288 million globally this year.

“They predict what’s going to happen,” says Piers Harding-Rolls, a gaming researcher for Ampere Analysis. “That has some legitimacy, but it is difficult to predict. It’s a very dynamic space.”

Antitrust officials also appear to be looking ahead to other emerging technologies. At an event in March, Justice Department chief antitrust enforcer Jonathan Kanter and FTC chair Lina Khan said they thought AI products like ChatGPT could be potentially transformational — and ripe for tech domination. giants.

“This is another transition that we are looking at closely,” Ms Khan said, “to make sure that if this is an opportunity for competition to really enter and disrupt the market, that we allow that rather than illegally tactics that block the market.”