The string of bad news for Facebook parent company Meta has grown even longer, after revelations that the United States government is suing the company to prevent it from building a monopoly in the emerging metaverse.

A legal injunction filed by the US Federal Trade Commission aims to stop Meta from acquiring virtual-reality content company Within Unlimited, whose well-received VR fitness app Supernatural exemplifies the kind of metaverse experience that is expected to bring the concept to the mass market.

Meta announced its purchase of Within last October – just a day after it officially rebranded from Facebook – and intends to position the fitness app as one of the core capabilities within its Reality Labs division.

That raised the hackles of antitrust authorities, who have become sensitised to potential monopolies after struggling to rein in the unfettered power of Big Tech giants such as Meta.

Warning of a Meta “campaign to conquer virtual reality”, the FTC announced the lawsuit while noting that the company has already “purchased seven of the most successful virtual reality development studios, and now has one of the largest first-party virtual reality content catalogues in the world.”

Whereas authorities have traditionally stepped in to regulate or break up monopolies once they’re created, the move suggests that the FTC’s approach has shifted towards proactively trying to head off monopolies before they’re created.

“Instead of competing on the merits, Meta is trying to buy its way to the top,” FTC Bureau of Competition deputy director John Newman said.

Noting that Meta “already owns a best-selling virtual reality fitness app [Beat Saber], and it had the capabilities to compete even more closely with Within’s popular Supernatural app… Meta chose to buy market position.”

“This is an illegal action,” Newman said, “and we will pursue all appropriate relief.”

An application for a temporary restraining order on the Within acquisition was filed against Meta Platforms, CEO Mark Zuckerberg, and Within Unlimited on 27 July, arguing that “allowing the acquisition to proceed would harm competition and consumers and undermine the Commission’s ability to remedy the anticompetitive effects of the acquisition” after the acquisition is complete.

Meta wasted no time in parrying the FTC’s attack, with Nikhil Shanbhag, vice president and associate general counsel for Competition and Regulatory arguing that “the FTC’s case is based on ideology and speculation, not evidence”.

“The idea that this acquisition would lead to anticompetitive outcomes in a dynamic space with as much entry and growth as online and connected fitness is simply not credible,” Shanbhag wrote, arguing that Beat Saber and Supernatural are based on entirely different concepts and calling the lawsuit “a chilling message to anyone who wishes to innovate in VR.”

Between a rock and a VR place

The lawsuit highlights the hypersensitivities around the metaverse, a high-stakes battleground that Meta openly wants to dominate.

Long-term aspirations face short-term realities, however, with the company losing users and bleeding money after privacy controls on Apple’s iPhones and other iOS devices caused it an estimated $14 billion ($US10 billion) in lost ad revenues.

This was compounded by the company’s first-ever drop in user numbers earlier this year, from 1.930 billion to 1.929 billion – news that sent the company’s share price plummeting by 20 per cent.

Meta is facing tough competition from the likes of Tik Tok, and was recently forced to walk back Tik Tok-like changes to its Instagram platform even as it tries to find a way to monetise its Reels short-video feature without cannibalising conventional ad revenues.

The metaverse was supposed to provide this opportunity – think in-world billboards, interactive promotions and embedded clickable offers – that, McKinsey noted in a recent analysis, “are already rewriting the rules of marketing”.

However, Meta’s failure to capitalise on this opportunity, compounded by market malaise that has halved the company’s market valuation this year alone, has set off alarm bells with analysts that argue it can’t afford to wait for the metaverse to take off.

Indeed, despite widespread sharemarket reductions during the quarter ending 30 June, Meta’s market capitalisation dropped by 38.7 per cent – outpacing rivals Apple (down 28.8 per cent), Google parent company Alphabet (28.1 per cent), and Microsoft (20.3 per cent).

“Meta is facing the perfect storm… at a pivotal, transition point for the company as it is looking to diversify away from its core ad business model with heavy spending on the metaverse,” said Rachel Foster Jones, thematic analyst at GlobalData, who warned that “Meta desperately needs to adjust its core ad-based business strategy and offerings.”

“Price per ad has slumped and as users continue to engage more with Reels, marketers will fail to continue to see the appeal in Meta. Failure to monetise short-form video content will concern investors as only then can it successfully support its haemorrhaging metaverse division.”