“I remember we were pretty aligned to look at this as a way to expand the audience for VR,” Verdu said.
FTC lawyers used testimony from Verdu and other Meta employees to argue that Facebook’s parent company is crushing competition in the niche market for VR-based fitness apps by buying the game maker popular workout “Supernatural”.
The FTC case hinges on the idea that Meta’s decision to acquire Within rather than build its own VR fitness app deprives consumers of dynamic choices in the market going forward. Meta’s lawyers countered that the company had never been serious about building its own fitness app because it would have been too complicated a process. Zuckerberg is expected to testify as early as next week about the acquisition.
Testimony for a week and a half about Meta’s years of effort to expand into the VR-based fitness market revealed how the company’s larger goal of building the metaverse became. Meta has staked its future on the idea that people will one day want to work with colleagues, shop with friends, and spend time with loved ones in immersive digital realms accessible through augmented and virtual reality services.
Meta has funneled billions of dollars into trying to make its metaverse vision a reality. Even though the company suffered a decline in revenue and slashed 13% of its workforce this year in the face of an uncertain economic environment, Meta has remained faithful to its investment in VR. The company said earlier this year that it expects its virtual and augmented reality division to lose even more money next year. In October, Meta unveiled Quest Pro, a new $1,500 VR headset aimed at helping businesses and workers improve productivity.
So far, since buying small VR startup Oculus eight years ago, Meta has become the leading headset maker in the space, claiming 78% of all VR headset sales. in 2021, according to the lawsuit.
But Meta faces increasing competition in a still-nascent market. PlayStation plans to Release a new virtual reality headset early next year. Apple is also expected to release a competing headset next year, according to Bloomberg News. Taiwan-based High Tech Computer Corp. and China’s ByteDance-owned Pico, which also owns TikTok, are also rivals in the space.
At the heart of the FTC case is a buzzing virtual reality app created by Los Angeles-based studio Within called Supernatural, which offers its users daily exercise routines in seemingly extravagant settings. Instead of cycling on a stationary bike while staring at your living room wall, Supernatural promises its subscribers that they can put on a virtual reality headset and take an aerobics class on a snowy mountain or play a new sport. in a futuristic setting for less than $20 a month.
Over the past week and a half, executives have highlighted some of the barriers Meta faced in driving VR adoption that they believe VR fitness apps could help address. For starters, Meta’s existing headset users are predominantly young males drawn to immersive video games on Quest headsets. In December 2019, Verdu told staff members that only 7% of Quest helmet users were women, according to an exhibit and her testimony. Meta-executives thought a fitness app would attract more women and slightly older users to their services.
“If you look at the age profile of users in a lot of these [fitness] applications – a lot of these people are actually much broader in their age range than you would normally find in VR,” said Anshel Sag, an analyst at Moor Insights & Strategy who covers virtual reality companies. “This [VR fitness] reaches a wider audience of men and women.
Meta also saw VR fitness as a strategy to expand its revenue model. Currently, many VR game makers make money when users first purchase the game and sometimes through ad hoc in-app purchases. Meta executives believed fitness apps could adopt a subscription model, which could deter game makers from overcharging their customers while providing the social media giant with a stable revenue stream, according to reports. Meta typically takes a 30% discount on app purchases made on its Quest headsets.
Fitness apps also have the potential to turn Quest VR headsets into a routine for their users. Historically, people often only used a Meta VR headset for a few weeks after purchasing it. But if Quest headphones are part of users’ exercise routines, it could increase the regularity with which people use the devices.
Testimonials and exhibits reveal that Meta’s interest in fitness-related virtual reality products began as early as 2019. On September 30, 2019, Verdu emailed Nir Blumberger, now Meta’s VP of Development , and to Rade Stojsavljevic, now director of the company’s in-house studios and other employees titled “Project Saturday”, according to Verdu’s testimony. It was the internal code name the company called its efforts to acquire the studio behind Beat Saber, a popular rhythm game, in which users smash objects that rush towards them to the beat of energetic music in a futuristic world.
In that email, Verdu proclaims that Beat Saber is a Quest “systems seller” – a term used in Silicon Valley to describe content and software that drives hardware platform sales. In fact, in September 2019, at least 50% of people who bought Quest headphones went on to download Beat Saber. Verdu also wrote that Beat Saber also has “strategic value” as a potential subscription service and as a fitness vehicle.
“It’s kind of like going to the nightclub and dancing and sweating,” Verdu said. “It’s like getting a benefit for your fitness,” but the app isn’t specifically formatted for fitness.
In November 2019, Meta announcement it acquired Beat Games, the maker of Beat Saber. Over the years, Meta executives have pondered whether to rebrand Beat Saber as a fitness app. While some inside Meta thought it would be a great way to capitalize on an emerging market, others thought it would dilute the brand of a successful product. There have also been talks of forming a relationship with Peloton — an idea that Zuckerberg supported at one point, according to Verdu.
“I’m optimistic about fitness. A partnership with Peloton for Beat Saber sounds awesome,” Zuckerberg wrote. “I would like that to happen. Let me know how I can help you.
Mark Rabkin, vice president of virtual reality for Meta’s Reality Labs division, said Friday that he doesn’t believe Meta has the expertise to build its own fitness app. And he was completely against creating a fitness version of Beat Saber or forming a Peloton partnership.
“The idea never went beyond the first discussions,” he testified.
According to witnesses, it has always been difficult to turn Beat Saber into a fitness app. For starters, Meta would have to bring in experts to validate that the app actually improves fitness if the company were marketing it that way. And then the company may have to create a daily cadence of workout routines to offer enough content to make it a viable product. And Meta had promised Beat Games executives that they would retain creative control over the product after the acquisition, but they were focusing on other priorities, according to Verdu.
It’s “a lot of work even when you have the founder lined up,” Verdu testified.
FTC lawyers countered that Meta employs thousands of developers who could have helped reconfigure the existing Beat Saber app or even create its own VR fitness program. The company, which brought in $27.71 billion last quarter, had the resources to hire more experts, they say.
But by 2021, Zuckerberg seemed to favor acquiring a fitness app. On February 22 of the same year, Zuckerberg emailed Verdu and asked, “Beyond gaming, have you thought about getting FitXR or Supernatural,” referring to two premier VR fitness apps. plan. Verdu responded by saying, “I sting FitXR.”
Two days later, Verdu messaged a co-worker saying, “Zuck is still chasing me about fitness too! In March 2021, Verdu emailed a colleague saying “Zuck pressed me 5 different times to acquire a fitness business.”
Meta executives debated whether to buy Within or rival fitness app FitXR, according to Verdu. FitXR, which also offers VR exercise classes, would have been cheaper because they hadn’t yet matched Supernatural’s ability to deliver new content daily, according to Verdu. Meta was leaning towards buying the more established Within, but what prompted that decision, Verdu said, was a rumor that Apple was also considering acquiring Supernatural. Verdu testified that he believed the Within app was worth a purchase price of up to $500 million.
While Meta wasn’t quite ready to “pull the trigger” on the deal to acquire Within, it was “quite advanced and Zuck really wanted to do it,” Verdu wrote to a colleague in July 2021, according to his testimony.
Months later, Zuckerberg would reveal how badly he wanted it. On October 28, 2021, the company rebranded itself as Meta, signaling that the transformation of human communication through augmented and virtual reality was the next step. A day later, Meta announced that it had acquired Within.