Meta is building virtual world open to app makers, CEO tells antitrust court

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By Katie Paul

SAN JOSE, Calif. (Reuters) -Meta Platforms Inc boss Mark Zuckerberg defended his acquisition of a virtual reality fitness app to an antitrust judge on Tuesday, arguing that his company was helping to build a nascent virtual reality industry, not dominate it.

Zuckerberg testified in federal court in San Jose, California, that owning app maker Within Unlimited was "not that critical" to Meta's ambitions, saying he primarily aimed to build communications tools and a platform for apps from different developers.

On fitness apps, he said, "it's less important that we own the experiences than that they exist." He said he was keen to see other firms build key productivity and gaming apps to draw a mass audience to virtual and augmented reality.

Zuckerberg was defending Meta's proposed acquisition in a high-profile trial over the future of the social media company's budding metaverse business. The Federal Trade Commission has accused Meta of trying to buy its way to the top of the VR industry.

FTC lawyers kicked off the proceedings by asking him about an internal email Zuckerberg wrote in 2015 where he said he expected Meta to build "most of the apps and software services" for the VR industry.

Zuckerberg replied that major platform owners tend to build the most popular apps in their area of expertise, likening Meta's emphasis on communications to Microsoft Corp (NASDAQ:MSFT)'s focus on productivity.

Platform companies have built "the key apps, what they call the killer apps," Zuckerberg said, "but they're not the only apps available."

The FTC sued the Facebook (NASDAQ:META) and Instagram owner in July to stop the Within deal and asked the judge to order a preliminary injunction, saying Meta's "campaign to conquer VR" began in 2014 when it acquired Oculus, a VR headset manufacturer.

The trial is only one of many battles Meta is fighting against regulators globally over its alleged dominance in various markets. The European Commission on Monday said it had warned Meta of a possible antitrust breach related to online classified advertising.

The company said earlier on Tuesday that it does not expect to close the Within deal before Jan. 31 or until the day after the court rules on the FTC's request for a preliminary injunction.

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FTC lawyers at the trial attempted to show that Meta had planned to compete with apps like Within, arguing that executives identified fitness as a way to expand VR use beyond its existing fan base of young male gamers.

They displayed a WhatsApp chat between two Meta executives in which one, Jason Rubin, said he had told Within executives that Meta was "intent" on getting into the fitness segment.

In the chat, Rubin said he relayed to Within that Meta could move faster if it had a first-party business - one that it owned - but also would "support everyone like we do with games." He said Zuckerberg was aware of the plan to deliver that message.

Zuckerberg said he could not recall a discussion with Rubin on the subject.

Meta has poured money into its metaverse-focused Reality Labs unit, recently drawing criticism from investors who have urged Zuckerberg to slow down as advertising sales crumble. Last month Meta said it would cut more than 11,000 jobs.

The social media company agreed to buy Within in October 2021, a day after changing its name from Facebook to Meta.

Zuckerberg told the court he decided to pursue the deal when Meta was in a stronger financial position and that he probably would not make the same decision in the current economic climate.

Within developed Supernatural, a VR app it advertises as a "complete fitness service" with choreographed workouts. It is available only on Meta's Quest headsets, which market research firm IDC estimates account for 90% of global shipments in the VR hardware market.

Meta also controls a Meta Quest Store with hundreds of apps, including top app Beat Saber, a dance game that executives considered expanding into the fitness space.

Zuckerberg testified that the Beat Saber proposal never proceeded beyond the brainstorming stage.

The FTC is separately trying to force Meta to unwind two previous acquisitions, Instagram and WhatsApp, in a lawsuit filed in 2020. Both were in relatively new markets at the time the companies were purchased.