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“ The FTC is blocking companies from making the investments they need to support the next generation of technological advancements. ”
American technology companies create products and services that bring enormous value to consumers around the globe, but if the U.S. Federal Trade Commission continues its indiscriminate crusade against the technology sector, value creation and innovation will stagnate.
Since taking over the reins at the FTC, Chair Lina Khan has cast aside longstanding antitrust principles focused on maximizing pro-consumer effects. The Khan doctrine is more concerned with nebulous notions of “competitive process.” This was expected given her following among antitrust populists whose “big is bad” and “tech is bad” rallying cries have resonated with both sides of the aisle in Washington.
This new antitrust movement has long been motivated by the prospect of dulling the perceived power of large technology firms. And under Khan’s leadership, the FTC has adopted a “by any means necessary” approach to accomplishing that goal — even if it means reopening closed cases or siccing European regulators on American companies when legal proceedings on this side of the Atlantic don’t result in decisions favorable to the FTC.
This approach will ultimately stunt innovation, forcing companies that have their eyes set on the next wave of technology to mitigate perceived harms to soon-to-be obsolete markets.
My research and teaching curriculum are focused on how companies can build the future through technologies like cloud computing and the metaverse. From where I sit, the efforts of the FTC have done nothing but styme the future. Indeed, the FTC is missing the forest for the trees by looking at the past instead of considering what it takes to build the future. Ushering in new technologies is never just about one thing — all technologies rely on an ecosystem of complementary offerings to truly realize their potential. Consider electric cars: there isn’t much value to having an electric car if there isn’t a national network of charging stations.
The FTC is blocking companies from making the investments they need to support the next generation of technological advancements. Take, for instance, the FTC’s ill-fated efforts to block Microsoft’s
MSFT,
acquisition of video game maker Activision Blizzard
ATVI,
The future of the video game industry is cloud gaming — instead of consumers having to buy expensive consoles or desktop computers, cloud computing is opening the gaming experience to more consumers and allowing them to play leading game titles on any device, anywhere, at any time. Remember the days before you could stream any movie from services like Netflix
NFLX,
and Disney+
DIS,
on your phone? We used to have to own a Blu-ray, DVD, or VHS player and had to purchase or rent specific disc or tape. That is where the digital gaming ecosystem has been.
Rather than recognizing Microsoft’s interest in building a next-generation gaming experience — where its existing prowess in gaming, cloud computing, and other technologies will bring Activision Blizzard content to more consumers in a more convenient way — the FTC is laser-focused on cloud licensing agreements for Microsoft’s best-selling video game Call of Duty. Here, the FTC is undermining innovation with a myopic focus on protecting competitors like Sony
SONY,
which rely on last century’s business models.
Even so, Microsoft has agreed to give Sony access to all future Call of Duty content. Microsoft’s goal in acquiring Activision Blizzard isn’t to deprive Sony customers of specific games, but rather to transfer content to the new cloud computing-supported subscription business model. Luckily for consumers, the FTC’s campaign against Microsoft sputtered when the agency suffered back-to-back losses in federal court.
“ The FTC’s aggressive stance toward mergers and acquisitions generally has the effect of suppressing investment in startups. ”
Similarly, Meta Platforms
META,
has invested tens of billions of dollars into making virtual reality, well, a reality. But the company cannot realize this vision with its headsets alone. The hardware needs content to make it work. This is what drives the whole ecosystem forward. Meta’s acquisition of virtual-reality fitness app Within faced steep opposition from the FTC — which ultimately resulted in a series of stunning losses for the agency. The FTC’s lawsuit hinged on idle comments from Meta CEO Mark Zuckerberg about being on a “campaign to conquer VR” and Meta’s previous acquisition of Oculus, through which Meta continues to foster the introduction of better and better virtual reality headsets and controllers.
Meta is reorienting its business model to prepare for the future and bring new products and services to market and maximize consumer satisfaction. Unsurprisingly, the FTC lost this battle and withdrew its opposition to the deal. Not satisfied with the result, the FTC is proposing to renegotiate the terms of a settlement reached with Meta in 2020. Even one of Lina Khan’s fellow Democrat commissioners is questioning the agency’s ability to reopen a court-negotiated consent decree. At the same time, FTC staff is openly working hand in hand with European regulators to coordinate an aggressive antitrust agenda.
Read: And thus the ChatGPT backlash has begun
The FTC’s aggressive stance toward mergers and acquisitions generally has the effect of suppressing investment in startups. Most startup founders say acquisition by a larger firm is their preferred exit strategy. Larger firms have the resources to more quickly bring new or complementary products and services to market. This is a reality that benefits consumers and other players in the digital platform ecosystem, including small businesses and app developers. A healthy acquisition market is integral to robust competition. The next generation of corporate power players are built through strategic investments and purchases — a win for both the business community and consumer welfare.
To protect innovation and value creation for all participants in the digital economy, the FTC must return to its mission to protect consumer welfare against genuinely anticompetitive and deceptive business practices. If it continues down the current path, the U.S. will follow in the footsteps of the European Union, with no champion technology companies to speak of and no next generation of medical breakthroughs at our fingertips. This will leave a black hole in global leadership in innovation, a void our geopolitical rivals will be clamoring to fill.
Andy Wu is an associate professor of business administration in the Strategy Unit at Harvard Business School, where he teaches in the MBA and executive education programs.
More: FTC antitrust suit against Amazon coming in September: report
Plus: Biden antitrust enforcers stick to ‘tough talk’ despite mounting court losses
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