As regulators block tech deals, they are increasingly looking to the future

As companies like Google and Facebook grew into giants in the early 21st century, regulators chose to largely stay out of the fledgling Internet services market.

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

The decision of the British authorities on Wednesday to block Microsoft’s $69 billion bid to buy video game giant Activision Blizzard became an example of a new approach. British officials said the main reason for rejecting the deal was that it could threaten competition in the nascent cloud gaming marketwhich allows users to stream their favorite video games.

This argument is becoming familiar. The US Federal Trade Commission, which last year sued to block the Microsoft deal for Activision, there were also concerns about cloud gaming competition, although the agency focused mainly on the impact on the traditional console game business.

Then this month, the FTC ordered the biotech firm Illumina to sell the company that it acquired, saying the deal could hurt competition in the fledgling market for cancer blood tests. And in July The FTC sued to stop Metaowner of Facebook and Instagram, will pull out of buying a virtual reality startup because the agency said the purchase would give the tech giant unacceptable power over the new metaverse.

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

“The agencies need to be ahead of the curve on this,” said Diana Moss, president of the US Antitrust Institute, which receives funding from Microsoft.

Regulators’ fascination with anticipating how tech giants might hurt competition stems in large part from their perceived inability to do so in the past. In the 1970s and 1980s, courts and regulators made it more difficult for the government to prove that an acquisition could unlawfully harm potential future competition. Courts have also said that it is difficult to deal with the uncertainty of young industries. As such, regulators have focused mainly on whether the deal could harm competition in developed markets.

It’s unclear whether the new forecasting method will work for regulators. In February, the judge ruled against the FTC’s attempt stop Meta’s virtual reality deal. And Ilumina said it plans to appeal the agency’s order to sell its blood-testing company.

Still, predicting the tech giants’ power plays has become a major target for lawmakers, activists and regulators who say the companies have too much influence. After many critics argued that governments were effectively asleep at the wheel and Google, Amazon, Meta and Apple became giants, they are now in government themselves and under pressure to do things differently.

The biggest tech companies, for their part, are racing to own the next big thing. There is a goal invest heavily in virtual realityand Apple is working on augmented reality glasses. The explosion of AI chatbots has renewed the fight between Google and Microsoft to control web searches.

The FTC and the Justice Department declined to comment specifically on their interest in the new technology beyond earlier statements. Microsoft declined to comment, and Britain’s Competition and Markets Authority did not respond to a request for comment.

The lack of regulatory action as tech giants grow is well documented. For example, the FTC declined to challenge Facebook’s 2012 purchase of Instagram and WhatsApp in 2014. Then in 2020, the agency sued Facebook over antitrust concerns, arguing that the acquisitions allowed it to illegally cut off younger competitors.

Likewise, the FTC allowed Google to purchase DoubleClick adware in 2007. This year, the Justice Department said that Google abused its monopoly in the advertising market.

Gene Kimmelman, a former Justice Department antitrust official who advocates for stronger regulation of tech giants, said regulators in the early days of the Internet were beset 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 didn’t see what was coming,” he said.

By 2021, regulators were looking more at future markets. That year, the FTC filed suit in its domestic court to stop Ilumina from buying the Grail, which tests blood to detect cancer. Judge of the domestic court managed for Ilumina, which has already taken the unusual step of closing the deal.

this month, The FTC voted overturn the judge’s order and demanded that Illumina sell the Grail. Ilumina plans to appeal the decision in traditional federal court.

Last year, the FTC sued to block Meta from buying Within, which makes a virtual reality fitness game, saying it would harm competition in the so-called metaverse market, where users play, work and communicate in virtual worlds. In February, a judge refused to temporarily halt the deal, and the agency dropped its appeal.

In trying to block Microsoft’s purchase of Activision — the biggest consumer technology deal since AOL bought Time Warner decades ago — British authorities have focused squarely on the deal’s impact on cloud gaming, now a niche market.

Officials said cloud gaming could be worth $13.7 billion globally by 2026, and are concerned that Microsoft already accounts for 60 to 70 percent of today’s services. Microsoft also has tools to manage the entire cloud gaming ecosystem, from the Azure cloud system to Xbox services, the agency said.

But cloud gaming is in its infancy, and it is there is no guarantee that the technology, which requires massive processing power and often crashes, will become mainstream. According to London-based firm Ampere Analysis, sales of subscription services that exclusively offer cloud gaming will reach about $288 million worldwide this year.

“They’re predicting what’s going to happen,” said Piers Harding-Rawls, games researcher for Ampere Analysis. “There is some legitimacy to it, but it’s hard to predict. It’s a very dynamic space.”

Antitrust officials seem to be looking ahead to other young technologies as well. At an event in March, Jonathan Kanter, the Justice Department’s head of antitrust, and FTC Chairwoman Lina Hahn said they view AI products as ChatGPT could be potentially transformative – and ripe for tech giants to dominate.

“It’s another transition that we’re looking at carefully,” Ms. Khan said, “to make sure that if it’s an opportunity for competition to really come into the market and disrupt it, we allow that to happen, rather than an illegal market-locking tactic.” “.