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    From Unicorns to Zombies: Tech Start-Ups Run Out of Time and Money

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    After staving off collapse by cutting costs, many young tech companies are out of options, fueling a cash bonfire.WeWork raised more than $11 billion in funding as a private company. Olive AI, a health care start-up, gathered $852 million. Convoy, a freight start-up, raised $900 million. And Veev, a home construction start-up, amassed $647 million.In the last six weeks, they all filed for bankruptcy or shut down. They are the most recent failures in a tech start-up collapse that investors say is only beginning.After staving off mass failure by cutting costs over the past two years, many once-promising tech companies are now on the verge of running out of time and money. They face a harsh reality: Investors are no longer interested in promises. Rather, venture capital firms are deciding which young companies are worth saving and urging others to shut down or sell.It has fueled an astonishing cash bonfire. In August, Hopin, a start-up that raised more than $1.6 billion and was once valued at $7.6 billion, sold its main business for just $15 million. Last month, Zeus Living, a real estate start-up that raised $150 million, said it was shutting down. Plastiq, a financial technology start-up that raised $226 million, went bankrupt in May. In September, Bird, a scooter company that raised $776 million, was delisted from the New York Stock Exchange because of its low stock price. Its $7 million market capitalization is less than the value of the $22 million Miami mansion that its founder, Travis VanderZanden, bought in 2021.“As an industry we should all be braced to hear about a lot more failures,” said Jenny Lefcourt, an investor at Freestyle Capital. “The more money people got before the party ended, the longer the hangover.”Getting a full picture of the losses is difficult since private tech companies are not required to disclose when they go out of business or sell. The industry’s gloom has also been masked by a boom in companies focused on artificial intelligence, which has attracted hype and funding over the last year.But approximately 3,200 private venture-backed U.S. companies have gone out of business this year, according to data compiled for The New York Times by PitchBook, which tracks start-ups. Those companies had raised $27.2 billion in venture funding. PitchBook said the data was not comprehensive and probably undercounts the total because many companies go out of business quietly. It also excluded many of the largest failures that went public, such as WeWork, or that found buyers, like Hopin.Carta, a company that provides financial services for many Silicon Valley start-ups, said 87 of the start-ups on its platform that raised at least $10 million had shut down this year as of October, twice the number for all of 2022.This year has been “the most difficult year for start-ups in at least a decade,” Peter Walker, Carta’s head of insights, wrote on LinkedIn.Venture investors say that failure is normal and that for every company that goes out of business, there is an outsize success like Facebook or Google. But as many companies that have languished for years now show signs of collapse, investors expect the losses to be more drastic because of how much cash was invested over the last decade.From 2012 to 2022, investment in private U.S. start-ups ballooned eightfold to $344 billion. The flood of money was driven by low interest rates and successes in social media and mobile apps, propelling venture capital from a cottage financial industry that operated largely on one road in a Silicon Valley town to a formidable global asset class akin to hedge funds or private equity.During that period, venture capital investing became trendy — even 7-Eleven and “Sesame Street” launched venture funds — and the number of private “unicorn” companies worth $1 billion or more exploded from a few dozen to more than 1,000.But the advertising profits gushing from the likes of Facebook and Google proved elusive for the next wave of start-ups, which have tried untested business models like gig work, the metaverse, micromobility and cryptocurrencies.Now some companies are choosing to shut down before they run out of cash, returning what remains to investors. Others are stuck in “zombie” mode — surviving but unable to grow. They can muddle along like that for years, investors said, but will most likely struggle to raise more money.Convoy, the freight start-up that investors valued at $3.8 billion, spent the last 18 months cutting costs, laying off staff and otherwise adapting to the difficult market. It wasn’t enough.As the company’s money ran low this year, it lined up three potential buyers, all of whom backed out. Coming so close, said Dan Lewis, Convoy’s co-founder and chief executive, “was one of the hardest parts.” The company ceased operations in October. In a memo to employees, Mr. Lewis called the situation “the perfect storm.”Such port-mortem assessments, where founders announce their company is closing and reflect on lessons learned, have become common.One entrepreneur, Ishita Arora, wrote this week that she had to “confront reality” that Dayslice, her scheduling software start-up, was not attracting enough customers to satisfy investors. She returned some of the cash she had raised. Gabor Cselle, a founder of Pebble, a social media start-up, wrote last month that despite feeling that he had let the community down, trying and failing was worth it. Pebble is returning to investors a small portion of the money it had raised, Mr. Cselle said. “It felt like the right thing to do.”Amanda Peyton was surprised by the reaction to her blog post in October about the “dread and loneliness” of shutting down her payments start-up, Braid. More than 100,000 people read it, and she was flooded with messages of encouragement and gratitude from fellow entrepreneurs.Ms. Peyton said she had once felt that the opportunity and potential for growth in software was infinite. “It’s become clear that that’s not true,” she said. “The market has a ceiling.”Venture capital investors have taken to gently urging some founders to consider walking away from doomed companies, rather than waste years grinding away.“It might be better to accept reality and throw in the towel,” Elad Gil, a venture capital investor, wrote in a blog post this year. He did not respond to a request for comment.Ms. Lefcourt of Freestyle Ventures said that so far, two of her firm’s start-ups had done exactly that, returning 50 cents on the dollar to investors. “We’re trying to point out to founders, ‘Hey, you don’t want to be caught in no man’s land,’” she said.One area that is thriving? Companies in the business of failure.SimpleClosure, a start-up that helps other start-ups wind down their operations, has barely been able to keep up with demand since it opened in September, said Dori Yona, the founder. Its offerings include helping prepare legal paperwork and settling obligations to investors, vendors, customers and employees.It was sad to see so many start-ups shutting down, Mr. Yona said, but it felt special to help founders find closure — both literally and figuratively — in a difficult time. And, he added, it is all part of Silicon Valley’s circle of life.“A lot of them are already working on their next companies,” he said.Kirsten Noyes More

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    Biden Faces Economic Challenges as Cost-of-Living Despair Floods TikTok

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    Economic despair dominates social media as young people fret about the cost of living. It offers a snapshot of the challenges facing Democrats ahead of the 2024 election.Look at economic data, and you’d think that young voters would be riding high right now. Unemployment remains low. Job opportunities are plentiful. Inequality is down, wage growth is finally beating inflation, and the economy has expanded rapidly this year.Look at TikTok, and you get a very different impression — one that seems more in line with both consumer confidence data and President Biden’s performance in political polls.Several of the economy-related trends getting traction on TikTok are downright dire. The term “Silent Depression” recently spawned a spate of viral videos. Clips critical of capitalism are common. On Instagram, jokes about poor housing affordability are a genre unto themselves.Social media reflects — and is potentially fueling — a deep-seated angst about the economy that is showing up in surveys of younger consumers and political polls alike. It suggests that even as the job market booms, people are focusing on long-running issues like housing affordability as they assess the economy.The economic conversation taking place virtually may offer insight into the stark disconnect between optimistic economic data and pessimistic feelings, one that has puzzled political strategists and economists.Never before was consumer sentiment this consistently depressed when joblessness was so consistently low. And voters rate Mr. Biden badly on economic matters despite rapid growth and a strong job market. Young people are especially glum: A recent poll by The New York Times and Siena College found that 59 percent of voters under 30 rated the economy as “poor.”President Biden’s campaign is working with content creators on TikTok to “amplify a positive, affirmative message” on the economy, a deputy campaign manager said.Desiree Rios for The New York TimesThat’s where social media could offer insight. Popular interest drives what content plays well — especially on TikTok, where going viral is often the goal. The platforms are also an important disseminator of information and sentiment.“A lot of people get their information from TikTok, but even if you don’t, your friends do, so you still get looped into the echo chamber,” said Kyla Scanlon, a content creator focused on economic issues who posts carefully researched explainers across TikTok, Instagram and X.Ms. Scanlon rose to prominence in the traditional news media in part for coining and popularizing the term “vibecession” for how bad consumers felt in 2022 — but she thinks 2023 has seen further souring.“I think people have gotten angrier,” she said. “I think we’re actually in a worse vibecession now.”Surveys suggest that people in Generation Z, born after 1996, heavily get their news from social media and messaging apps. And the share of U.S. adults who turn to TikTok in particular for information has been steadily climbing. Facebook is still a bigger news source because it has more users, but about 43 percent of adults who use TikTok get news from it regularly, according to a new survey by the Pew Research Center.It is difficult to say for certain whether negative news on social media is driving bad feelings about the economy, or about the Biden administration. Data and surveys struggle to capture exactly what effect specific news delivery channels — particularly newer ones — have on people’s perceptions, said Katerina Eva Matsa, director of news and information research at the Pew Research Center.“Is the news — the way it has evolved — making people view things negatively?” she asked. It’s hard to tell, she explained, but “how you’re being bombarded, entangled in all of this information might have contributed.”More Americans on TikTok Are Going There for NewsShare of each social media site’s users who regularly get news there, 2020 vs. 2023

    Source: Pew Research Center surveys of U.S. adultsBy The New York TimesMr. Biden’s re-election campaign team is cognizant that TikTok has supplanted X, formerly known as Twitter, for many young voters as a crucial information source this election cycle — and conscious of how negative it tends to be. White House officials say that some of those messages accurately reflect the messengers’ economic experiences, but that others border on misinformation that social media platforms should be policing.Rob Flaherty, a deputy campaign manager for Mr. Biden, said the campaign was working with content creators on TikTok in an effort to “amplify a positive, affirmative message” about the economy.A few political campaign posts promoting Mr. Biden’s jobs record have managed to rack up thousands of likes. But the “Silent Depression” posts have garnered hundreds of thousands — a sign of how much negativity is winning out.In those videos, influencers compare how easy it was to get by economically in 1930 versus 2023. The videos are misleading, skimming over the crucial fact that roughly one in four adults was unemployed in 1933, compared with four in 100 today. And the data they cite are often pulled from unreliable sources.But the housing affordability trend that the videos spotlight is grounded in reality. It has gotten tougher for young people to afford a property over time. The cost of a typical house was 2.4 times the typical household income around 1940, when government data start. Today, it’s 5.8 times.Nor is it just housing that’s making young people feel they’re falling behind, if you ask Freddie Smith, a 35-year-old real estate agent in Orlando, Fla., who created one especially popular “Silent Depression” video. Recently, it is also the costs of gas, groceries, cars and rent.“I think it’s the perfect storm,” Mr. Smith said. “It’s this tug of war that millennials and Gen Z are facing right now.”Inflation has cooled notably since peaking in the summer of 2022, which the Biden administration has greeted as a victory. Still, that just means that prices are no longer climbing as rapidly. Key costs remain noticeably higher than they were just a few years ago. Groceries are far more expensive than in 2019. Gas was hovering around $2.60 a gallon at the start of 2020, for instance, but is around $3.40 now.Young Americans Are Spending More and Earning MoreIncome after taxes and expenditures for householders under 25

    Source: Bureau of Labor Statistics Consumer Expenditure Survey By The New York TimesThose higher prices do not necessarily mean people are worse off: Household incomes have also gone up, so people have more money to cover the higher costs. Consumer expenditure data suggests that people under 25 — and even 35 — have been spending a roughly equivalent or smaller share of their annual budgets on groceries and gas compared with before the pandemic, at least on average.“I think things just feel harder,” said Betsey Stevenson, a professor of public policy and economics at the University of Michigan, explaining that people have what economists call a “money illusion” and think of the value of a dollar in fixed terms.And housing has genuinely been taking up a bigger chunk of the young consumer’s budget than in the years before the pandemic, as rents, home prices and mortgage costs have all increased.Housing Is Eating Up Young People’s BudgetsShare of spending devoted to each category for people under 25

    Source: Bureau of Labor Statistics Consumer Expenditure SurveyBy The New York TimesIn addition to prices, content about student loans has taken off in TikTok conversations (#studentloans has 1.3 billion views), and many of the posts are unhappy.Mr. Biden’s student-loan initiatives have been a roller coaster for millions of young Americans. He proposed last year to cancel as much as $20,000 in debt for borrowers who earn less than $125,000 a year, a plan that was estimated to cost $400 billion over several decades, only to see the Supreme Court strike down the initiative this summer.Mr. Biden has continued to push more tailored efforts, including $127 billion in total loan forgiveness for 3.6 million borrowers. But last month, his administration also ended a pandemic freeze on loan payments that applied to all borrowers — some 40 million people.The administration has tried to inject more positive programming into the social media discussion. Mr. Biden met with about 60 TikTok creators to explain his initial student loan forgiveness plan shortly after announcing it. The campaign team also sent videos to key creators, for possible sharing, of young people crying when they learned their loans had been forgiven.The Biden campaign does not pay those creators or try to dictate what they are saying, though it does advertise on digital platforms aggressively, Mr. Flaherty said.“It needs to sound authentic,” he said. More

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    China’s Xi Jinping Draws Elon Musk, Tim Cook and other U.S. CEOs to Gala in San Francisco

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    Amid frosty U.S.-China relations, Xi Jinping emphasized friendship in an address to executives from Apple, Boeing, Nike and others.The streets outside the San Francisco hotel where Chinese leader Xi Jinping addressed a crowd of American business executives Wednesday night were chaotic, echoing with police sirens and the chants of protesters. A woman had strapped herself to a pole 25 feet in the air in front of the hotel, yelling “Free Tibet!” as a cold rain fell.But inside the ballroom of the Hyatt Regency, the atmosphere was warm and friendly. More than 300 executives and officials listened attentively as Mr. Xi — the leader of a country often considered America’s greatest rival — spoke for over half an hour about an enduring friendship between China and the United States that could not be diminished by recent turmoil.Mr. Xi spoke of pandas. He spoke of Ping-Pong. He spoke of Americans and Chinese working together during World War II to battle the Japanese. He addressed the tensions that have rocked U.S. and Chinese relations in the past year only briefly and obliquely, comparing the relationship to a giant ship that was trying to navigate through storms.“The number one question for us is: are we adversaries, or partners?” Mr. Xi asked. Seeing the other side as a competitor, he said, would only lead to misinformed policy and unwanted results. “China is ready to be a partner and friend of the United States.”Among those who paid thousands of dollars to attend the dinner and hear Mr. Xi’s message were Tim Cook, the chief executive of Apple, Larry Fink of BlackRock, and Jerry Brown, the former governor of California. They mingled with executives from Boeing, Pfizer, Nike and FedEx. Elon Musk popped by during the cocktail hour to greet Mr. Xi, but departed before dinner began.Mr. Xi’s tone was welcomed by many of those in attendance, who believe that more engagement between the United States and China will improve the lives of people in both countries, reduce misunderstandings and potentially even deter a war.“I think it’s important Americans and Chinese are meeting again face to face,” John L. Holden, managing director for China of McLarty Associates, a consultancy, said as he queued outside the hotel. “This is not a magic bullet, but it is something that can provide possibilities that wouldn’t exist otherwise.”President Biden met with Mr. Xi earlier in the day at the Filoli Estate outside of San Francisco.Doug Mills/The New York TimesMr. Xi’s positive tone, and the enthusiasm of some of the event’s attendees, struck a sharp contrast with much of the recent conversation in the United States about China, which has focused on potential economic and security threats.Republican lawmakers have blasted President Biden for his “zombie engagement” with China. Recent polls have shown that Americans are more concerned about the rise of China than at any point since the end of the Cold War.At a news conference Wednesday, Mr. Biden celebrated a successful meeting with Mr. Xi earlier that day, which had resulted in agreements to fight drug trafficking and increase communication between the countries’ militaries. But when asked if he still thought Mr. Xi was a dictator, Mr. Biden replied: “Well, look, he is.”China has for decades been an attractive market for American businesses because of its size and growth, but the country’s slowing economy and increasingly authoritarian bent have been cooling the enthusiasm executives feel toward China.Foreign companies say the Chinese government has been slowly squeezing them out in favor of local competitors. While some think Chinese leaders have been shaken by a recent drop-off in foreign investment in China and are motivated to mend ties, executives are still concerned about recent crackdowns in China on foreign business and strict regulations, including on how companies use Chinese data.For companies that manufacture in China, supply chain disruptions during the pandemic also sent a strong message that firms should not rely on a single country for their goods, and kicked off a trend toward “de-risking.” Still, some American businesses are still making a lot of money in China. “I don’t think that anybody thinks that one dinner, or one visit, or one conference is going to reverse all the hostility that has built up between the U.S. and China,” Michael Hart, the president of the American Chamber of Commerce in China, said in an interview on Tuesday. But he added that if Mr. Xi had a friendlier stance toward the United States, “that will hopefully mean a slightly more friendly operating environment toward U.S. business in China.”Supporters of Mr. Xi near his hotel in San Francisco on Tuesday.Jim Wilson/The New York TimesIn the ballroom, 34 tables were laid with roses and orchids. They were numbered 1 to 39, skipping any number with a four, which in Chinese sounds similar to death, as well as unlucky number 13. Guests chose between a coffee-crusted Black Angus steak and vegetable curry with jasmine rice and toasted pistachios.Gina Raimondo, the U.S. secretary of commerce who spoke at the dinner, thanked Mr. Xi for a productive meeting earlier that day, where Chinese officials had met with Mr. Biden and his deputies.“We all know that we have differences,” Ms. Raimondo said at the dinner. “I’m not going to pretend otherwise. That being said, President Biden has been very clear that while we compete with China and other countries, we do not seek conflict and we do not seek confrontation.”“We want robust trade with China,” Ms. Raimondo said. She said that many of the people in attendance remained keenly interested in doing business in China. “I know that because many of you come to see me and tell me that,” she said, to laughter.Mr. Xi, who has overseen China’s military modernization and increasingly robust projection of power abroad, emphasized China’s commitment to a rules-based international system, its efforts to eradicate poverty, and its peaceful nature. Mr. Xi also touted his personal connections to the United States, including the time he spent in Iowa in the 1980s and an old photo he said he keeps of himself in front of the Golden Gate Bridge.“China has no intention to challenge the United States or unseat it,” he said.Stephen A. Orlins, the president of the National Committee on United States-China Relations, one of the groups sponsoring the event, said he was there when the committee hosted previous Chinese leaders in the United States — Deng Xiaoping, Jiang Zemin and Hu Jintao — and that all had projected a friendly demeanor. He recalled Mr. Deng famously donning a cowboy hat during a U.S. visit in 1979.“When they stand in front of an American, they tend to be more constructive and pro-American. It’s just part of what happens,” Mr. Orlins said. “They’re not going to come to an event like this and put their thumb in the eye of us as the sponsors and the audience.”Mr. Xi touted his connections to the United States during his speech. Jeff Chiu/Associated PressMr. Orlins’ group and the other organizer of the event, the U.S.-China Business Council, went through a logistical Olympics to set up the dinner. Because of security concerns, the organizers could not reveal the location until the day before, and guests received an invitation to an event with an unnamed “senior Chinese leader.”Mr. Orlins said his group knew that Mr. Xi had attended every meeting of the international grouping known as the Asia-Pacific Economic Cooperation, and concluded that he would do the same when the meeting occurred in San Francisco this week. So they extended an invitation nine months ago to host Mr. Xi.Three or four weeks ago, Mr. Orlin said he was told that Mr. Xi’s presence was still uncertain, but that he should start preparations.The Chinese protocol office peered over every attendee; they were extremely sensitive about security, especially since someone had crashed a sedan into the Chinese consulate in San Francisco just weeks before. The White House insisted that the dinner happen after Mr. Biden’s meeting with Mr. Xi Wednesday, so as not to upstage that event.The groups had to hire copious security and staff, and even fly in translation equipment, since local supplies were already claimed by the Asia-Pacific conference. Even though far more people wanted to attend the event than there was capacity for, Mr. Orlin said the $40,000 the groups charged for some tables would only partially recoup the costs of the event.Mr. Orlins said the Chinese had prepared three versions of a speech Mr. Xi could deliver that night. After Wednesday’s events with Mr. Biden, Mr. Xi had picked the friendliest one. More

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    The Upshot of Microsoft’s Activision Deal: Big Tech Can Get Even Bigger

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    President Biden’s top antitrust officials have used novel arguments over the past few years to stop tech giants and other large companies from making deals, a strategy that has had mixed success.But on Friday, when Microsoft closed its blockbuster $69 billion acquisition of the video game publisher Activision Blizzard after beating back a federal government challenge, the message sent by the merger’s completion was incontrovertible: Big Tech can still get bigger.“Big Tech companies will certainly be reading the tea leaves,” said Daniel Crane, a law professor at the University of Michigan. “Smart money says merge now while the merging is good.”Microsoft’s purchase of Activision was the latest deal to move forward after a string of failed challenges to mergers by the Federal Trade Commission and the Justice Department, which are also confronting the big tech companies through lawsuits arguing they broke antimonopoly laws. Leaders at the two agencies had tried to block at least 10 other deals over the past two years, promising to dislodge longstanding ideas from antitrust law that they said had protected behemoths like Microsoft, Google and Amazon.But their efforts ran headlong into skeptical courts, largely leaving those core assumptions untouched. In the case of Microsoft’s Activision deal, the idea that the F.T.C. questioned was a “vertical” transaction, which refers to mergers between firms that are not primarily direct competitors. Regulators have rarely sued to block such deals, figuring that they generally do not create monopolies.Yet “vertical” deals have been especially common in the tech industry, where companies like Meta, Apple and Amazon have sought to grow and protect their empires by spreading into new business lines.In 2017, for instance, Amazon bought the high-end grocery chain Whole Foods for $13.4 billion. In 2012, Meta acquired the photo-sharing app Instagram for $1 billion and then shelled out nearly $19 billion for the messaging service WhatsApp in 2014. Of the 24 deals worth more than $1 billion completed by the tech giants from 2013 to mid-August of this year, 20 were vertical transactions, according to data provided by Dealogic.The sealing of the Microsoft-Activision deal has buttressed the notion that vertical deals generally are not anticompetitive and can still go through relatively unscathed.“There continues to be the presumption that vertical integration can be a healthy phenomena,” said William Kovacic, a former chair of the F.T.C. The F.T.C. is proceeding with its challenge to the Microsoft-Activision deal even as it has closed, said Victoria Graham, a spokeswoman for the agency, who added that the acquisition was a “threat to competition.” The Justice Department declined to comment. The White House did not immediately have a comment.The idea that vertical transactions were less likely to harm competition than combinations of direct rivals has been ingrained since the late 1970s. In the ensuing decades, the Justice Department and F.T.C. took no challenges to vertical deals to court, instead reaching settlements that allowed companies to proceed with their deals if they changed practices or divested parts of their business.Then, in 2017, the Justice Department sued to block the $85.4 billion merger between the phone giant AT&T and the media company Time Warner, in the agency’s first attempt to stop a vertical deal in decades. A judge ruled against the challenge in 2018, saying he did not see enough evidence of anticompetitive harms from the union of companies in different industries.Mr. Biden’s top antitrust officials — Lina Khan, the F.T.C. chair, and Jonathan Kanter, the top antitrust official at the Justice Department — have been even more aggressive in challenging vertical mergers since they were appointed in 2021.That year, the F.T.C. sued to stop the chip maker Nvidia from buying Arm, which licenses chip technology, and the companies abandoned the deal. In January 2022, the F.T.C. announced it would block Lockheed Martin’s $4.4 billion acquisition of Aerojet Rocketdyne Holdings, a missile propulsion systems maker. The companies dropped their merger.But judges rejected many of their efforts for lack of evidence and denied Ms. Khan and Mr. Kanter a courtroom win that would have set new precedent. In 2022, after the D.O.J. sued to block UnitedHealth Group’s acquisition of Change Healthcare, a judge ruled against the agency.Lina Khan, the chair of the Federal Trade Commission, challenged Microsoft’s deal for Activision last year. Tom Brenner for The New York TimesThe F.T.C.’s move to block Microsoft’s purchase of Activision last year was a bold effort by Ms. Khan, given that the two companies do not primarily compete with one another. The agency argued that Microsoft, which makes the Xbox gaming console, could harm consumers and competition by withholding Activision’s games from rival consoles and would also use the deal to dominate the young market for game streaming.To show that would not be the case, Microsoft offered to make one of Activision’s major game franchises, Call of Duty, available to other consoles for 10 years. The company also reached a settlement with the European Union, promising to make Activision titles available to competitors in the nascent market for game streaming, which allowed the deal to go through.In July, a federal judge ultimately ruled that the F.T.C. didn’t provide enough evidence that Microsoft intended to forestall competition through the deal and that the software giant’s concession eliminated competition concerns.The agencies are “facing judges who have said 40 years of economics show that vertical mergers are good,” said Nancy Rose, a professor of applied economics at M.I.T. with an expertise in antitrust, who is among a group of scholars who say vertical deals can be harmful to competition. She said the agencies should not back down from challenging vertical mergers, but that regulators would need to be careful to choose cases they can prove with an abundance of evidence.Ms. Khan and Mr. Kanter have said they are willing to take risks and lose lawsuits to expand the boundaries of the law and spark action in Congress to change antitrust rules. Ms. Khan has noted that the F.T.C. has successfully stopped more than a dozen mergers.Mr. Kanter has said that challenges to mergers from the Justice Department and the F.T.C. have deterred problematic deals.“There are fewer problematic mergers that are coming to us in the first place,” he said in a speech at the American Economic Liberties Project, a left-leaning think tank, in August.Still, bigger companies that have the resources to fight back will probably feel more confident challenging regulators after the Microsoft-Activision deal, antitrust lawyers said. The aggressive posture by regulators has simply become the cost of doing business, said Ryan Shores, who led tech antitrust investigations at the D.O.J. during the Trump administration and is now a partner at the law firm Cleary Gottlieb.“A lot of companies have come to the realization that if they have a deal they want to get through, they have to be prepared to litigate,” he said. More

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    U.S. Blasts Google Over Paying $10 Billion a Year to Cut Out Search Rivals

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    The Justice Department and 38 states and territories on Tuesday laid out how Google had systematically wielded its power in online search to cow competitors, as the internet giant fiercely parried back, in the opening of the most consequential trial over tech power in the modern internet era.In a packed courtroom at the E. Barrett Prettyman U.S. Courthouse in Washington, the Justice Department and states painted a picture of how Google had used its deep pockets and dominant position, paying $10 billion a year to Apple and others to be the default search provider on smartphones. Google viewed those agreements as a “powerful strategic weapon” to cut out rivals and entrench its search engine, the government said.“This feedback loop, this wheel, has been turning for more than 12 years,” said Kenneth Dintzer, the Justice Department’s lead courtroom lawyer. “And it always turns to Google’s advantage.”Google denied that it had illegally used agreements to exclude its search competitors and said it had simply provided a superior product, adding that people can easily switch which search engine they use. The company also said that internet search extends more broadly than its general search engine and pointed to the many ways that people now find information online, such as Amazon for shopping, TikTok for entertainment and Expedia for travel.“Users today have more search options and more ways to access information online than ever before,” said John E. Schmidtlein, the lawyer who opened for Google.The back-and-forth came in the federal government’s first monopoly trial since it tried to break up Microsoft more than two decades ago. This case — U.S. et al. v. Google — is set to have profound implications not only for the internet behemoth but for a generation of other large tech companies that have come to influence how people shop, communicate, entertain themselves and work.Over the next 10 weeks, the government and Google will present arguments and question dozens of witnesses, digging into how the company came to power and whether it broke the law to maintain and magnify its dominance. The final ruling, by Judge Amit P. Mehta of the U.S. District Court of the District of Columbia, could shift the balance of power in the tech industry, which is embroiled in a race over artificial intelligence that could transform and disrupt people’s lives.A government victory could set limits on Google and change its business practices, sending a humbling message to the other tech giants. If Google wins, it could act as a referendum on increasingly aggressive government regulators, raise questions about the efficacy of century-old antitrust laws and further embolden Silicon Valley.“It is a test of whether our current antitrust laws — the Sherman Act, written in 1890 — can adapt to markets that are susceptible to monopolization in the 21st century,” said Bill Baer, a former top antitrust official at the Justice Department, adding that Google was “indisputably powerful.”The case is part of a sweeping effort by the Biden administration and states to rein in the biggest tech companies. The Justice Department has filed a second lawsuit against Google over its advertising technology, which could go to trial as early as next year. The Federal Trade Commission is separately moving toward a trial in an antitrust lawsuit against Meta. Investigations remain open in efforts that could lead to antitrust lawsuits against Amazon and Apple.The Justice Department filed the case accusing Google of illegally maintaining its dominance in search in October 2020. Months later, a group of attorneys general from 35 states, Puerto Rico, Guam and the District of Columbia filed their own lawsuit arguing that Google had abused its monopoly over search. Judge Mehta is considering both lawsuits during the trial.The case centers on the agreements that Google reached with browser developers, smartphone manufacturers and wireless carriers to use Google as the default search engine on their products. Since the lawsuit was filed, more than five million documents and depositions of more than 150 witnesses have been submitted to the court. Last month, Judge Mehta narrowed the scope of the trial, while allowing the core claims of monopoly abuse in search to remain.The trial unfolded on Tuesday in Courtroom 10 at Washington’s federal courthouse, a complex minutes from Capitol Hill. It drew a large crowd, with some people standing in line to enter as early as 4:30 a.m. Officials from the Google rivals Yelp and Microsoft also attended, as did dozens of attorneys and staff from the Justice Department, states and Google after years of work on the case.Judge Mehta began the proceedings punctually. In the government’s opening statement, Mr. Dintzer focused on the search agreements Google had struck with Apple and others. He referenced internal company documents that described how Google would not share revenue with Apple without “default placement” on its devices and how it worked to ensure that Apple couldn’t redirect searches to its Siri assistant.“Your honor, this is a monopolist flexing,” Mr. Dintzer said.In blunt language, Mr. Dintzer also argued that Google had tried to hide documents from antitrust enforcers by including lawyers on conversations and marking them as subject to attorney-client privilege. He showed a message from Sundar Pichai, Google’s chief executive, asking for the chat history to be turned off in one conversation.“They turned history off, your honor, so they could rewrite it here in this courtroom,” Mr. Dintzer said.William Cavanaugh, a lawyer for the states, echoed Mr. Dintzer’s concerns about Google’s agreements to become the default search engines on smartphones. He added that Google had limited a product used to place ads on other search engines to hurt Microsoft, which makes the Bing search engine.In response, Mr. Schmidtlein, Google’s lawyer, argued that the company’s default agreements with browser makers don’t lock up the market the way that the Justice Department said. Browser makers such as Apple and Mozilla both promote other search engines, he said, and it was easy for users to switch their default search engine.Using a slide show, Mr. Schmidtlein demonstrated the number of taps or clicks required to change the default on popular smartphones. People who wished to switch their search engine but did not know how could search Google for instructions or watch a video tutorial on YouTube, which Google owns, he said.The government’s evidence was coming from “snippets and out-of-context” emails, he said.The lawyers also sparred over whether Google was as dominant as the government claimed. The Justice Department and the states said Google competes primarily with broad search engines that act as a single place to look for multiple types of information. But Mr. Schmidtlein said Google’s universe of competitors was wider, including online retailers like Amazon, food delivery apps like DoorDash and travel booking sites like Expedia.In the afternoon, the Justice Department called Hal Varian, Google’s chief economist, as its first witness to establish that the company had long been aware of its power in search and deliberately tried to sidestep antitrust scrutiny.In more than three hours of testimony, Mr. Varian was asked about views that he shared with other Google employees on the power of defaults, the threat of Microsoft’s entry into search and his awareness of language that could invite the attention of antitrust regulators. The Justice Department drew from Mr. Varian’s emails and memos from as far back as the early 2000s.Mr. Varian is scheduled to return to the witness stand on Wednesday.Nico Grant More

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    A California Land Mystery Is Solved. Now the Political Fight Begins.

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    Tech industry investors spent roughly $900 million buying land to build a dream city in a rural part of the Bay Area. It could be years, though, before they can do anything with it.Jan Sramek was 15 years old the first time he tried to get a government to do something he wanted. Back then, he was an internet- and science fiction-obsessed teenager growing up in Drevohostice, in the Czech Republic.The problem was his town of 1,400 people had only dial-up internet service. He persuaded the local government to pay an internet service provider to bring the town a broadband connection. He was even paid a commission for it, Mr. Sramek wrote in “Racing Towards Excellence,” a sort of self-help book for ambitious young adults he co-wrote in 2009.The next campaign for Mr. Sramek could be more profitable. It could also be longer, harder and, in all likelihood, nastier.The revelation last week that Mr. Sramek is leading a group of Silicon Valley moguls in an audacious plan to build a new city on a rolling patch of farms and windmills in Northern California was the unofficial beginning of what promises to become a protracted and expensive political campaign. More

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    Biden Orders Ban on New Investments in China’s Sensitive High-Tech Industries

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    The new limits, aimed at preventing American help to Beijing as it modernizes its military, escalate a conflict between the world’s two largest economies.President Biden escalated his confrontation with China on Wednesday by signing an executive order banning new American investment in key technology industries that could be used to enhance Beijing’s military capabilities, the latest in a series of moves putting more distance between the world’s two largest economies.The order will prohibit venture capital and private equity firms from pumping more money into Chinese efforts to develop semiconductors and other microelectronics, quantum computers and certain artificial intelligence applications. Administration officials stressed that the move was tailored to guard national security, but China is likely to see it as part of a wider campaign to contain its rise.“The Biden administration is committed to keeping America safe and defending America’s national security through appropriately protecting technologies that are critical to the next generation of military innovation,” the Treasury Department said in a statement. The statement emphasized that the executive order was a “narrowly targeted action” complementing existing export controls and that the administration maintained its “longstanding commitment to open investment.”Narrow or not, the new order comes at perhaps the most fraught moment in the U.S.-China relationship since President Richard M. Nixon and Secretary of State Henry A. Kissinger opened a dialogue with Beijing in the early 1970s. A series of expanding export controls on key technologies to China has already triggered retaliation from Beijing, which recently announced the cutoff of metals like gallium that are critical for the Pentagon’s own supply chain.Mr. Biden has stressed that he wants to stabilize relations with China following a Cold War-style standoff over a spy balloon shot down after crossing through American airspace and the discovery of a broad Chinese effort to put malware into power grids and communications systems. He has sent Secretary of State Antony J. Blinken, Treasury Secretary Janet L. Yellen and other officials to renew talks with Chinese officials in recent months. Gina Raimondo, the commerce secretary, is expected to go to China in coming weeks.Indeed, the president seemed intent on not antagonizing Beijing with Wednesday’s order, making no comment about his action and leaving it to be announced through written material and background briefings by aides who declined to be identified.Still, China declared that it was “very disappointed” by the order, which it said was designed to “politicize and weaponize trade,” and it hinted at retaliation.“The latest investment restrictions will seriously undermine the interests of Chinese and American companies and investors, hinder the normal business cooperation between the two countries and lower the confidence of the international community in the U.S. business environment,” Liu Pengyu, a spokesman for the Chinese embassy, said in a statement.Administration officials said the president’s order is part of their effort to “de-risk” the relationship with China but not to “decouple” from it. Wednesday’s announcement, though, takes that effort to a new level. While export bans and concerns about Chinese investment in the United States have a long history, the United States has never before attempted such limits on the flow of investment into China.In fact, for the past few decades, the United States has encouraged American investors to deepen their ties in the Chinese economy, viewing that as a way to expand the web of interdependencies between the two countries that would gradually integrate Beijing into the Western economy and force it to play by Western rules.U.S. government reviews in recent years, however, concluded that investments in new technologies and joint ventures were fueling China’s military and its intelligence-collection capabilities, even if indirectly. American officials have been actively sharing intelligence reports with allies to make the case that Western investment is key to China’s military modernization plans — especially in space, cyberspace and the kind of computer power that would be needed to break Western encryption of critical communications.Administration officials cast the effort as one motivated entirely by national security concerns, not an attempt to gain economic advantage. But the order itself describes how difficult it is to separate the two, referring to China’s moves to “eliminate barriers between civilian and commercial sectors and military and defense industrial sectors.’’ It describes China’s focus on “acquiring and diverting the world’s cutting-edge technologies, for the purpose of achieving military dominance.”(The text of Mr. Biden’s order refers only to “countries of concern,” though an annex limits those to “the People’s Republic of China” and its two special administrative areas, Hong Kong and Macau.)Mr. Biden and his aides discussed joint efforts to limit high-tech investment with their counterparts at the recent Group of 7 summit meeting in Hiroshima, Japan. Several allies, including Britain and the European Union, have publicly indicated that they may follow suit. The outreach to other powers underscores that a U.S. ban may not be that effective by itself and would work only in conjunction with other major nations, including Japan and South Korea.The executive order, which also requires firms to notify the government of certain investments, coincides with a bipartisan effort in Congress to impose similar limits. An amendment along those lines by Senators Bob Casey, Democrat of Pennsylvania, and John Cornyn, Republican of Texas, was added to the Senate version of the annual defense authorization bill.Several Republicans criticized the president’s order as too little, too late and “riddled with loopholes,” as Senator Marco Rubio, Republican of Florida and vice chairman of the Senate Intelligence Committee, put it.“It is long overdue, but the Biden administration finally recognized there is a serious problem with U.S. dollars funding China’s rise at our expense,” Mr. Rubio said. “However, this narrowly tailored proposal is almost laughable.”Representative Michael McCaul, Republican of Texas and chairman of the House Foreign Relations Committee, said the new order should go after existing investments as well as sectors like biotechnology and energy.“We need to stop the flow of American dollars and know-how supporting” China’s military and surveillance apparatus “rather than solely pursuing half measures that are taking too long to develop and go into effect,” Mr. McCaul said.The United States already prohibits or restricts the export of certain technologies and products to China. The new order effectively means that American money, expertise and prestige cannot be used to help China to develop its own versions of what it cannot buy from American companies.It was unclear how much money would be affected. American investors have already pulled back dramatically over the past two years. Venture capital investment in China has plummeted from a high of $43.8 billion in the last quarter of 2021 to $10.5 billion in the second quarter of this year, according to PitchBook, which tracks such trends. But the latest order could have a chilling effect on investment beyond the specific industries at stake.In a capital where the goal of opposing China is one of the few areas of bipartisan agreement, the only sounds of caution in Washington came from the business community. While trade groups praised the administration for consulting them, there was concern that the downward spiral in relations could speed a broader break between the world’s two largest economies.“We hope the final rules allow U.S. chip firms to compete on a level playing field and access key global markets, including China, to promote the long-term strength of the U.S. semiconductor industry and our ability to out-innovate global competitors,” the Semiconductor Industry Association said in a statement.Gabriel Wildau, a managing director at the consulting firm Teneo who focuses on political risk in China, said the direct effect of the executive order would be modest, given its limited scope, but that disclosure requirements embedded in the order could have a chilling effect.“Politicians increasingly regard corporate investments in China as a form of collusion with a foreign enemy, even when there is no allegation of illegality,” he said.The Treasury Department, which has already consulted with American executives about the forthcoming order, will begin formally taking comments before drafting rules to be put in place next year. But American firms may alter their investment strategies even before the rules take effect, knowing that they are coming.A series of expanding export controls on key technologies to China has already triggered retaliation from Beijing.Florence Lo/ReutersChina’s own investment restrictions are broader than the new American rules — they apply to all outbound investments, not just those in the United States. And they reflect a technology policy that in some ways is the opposite of the new American restrictions.China discouraged or halted most low-tech outbound investments, like purchases of real estate or even European soccer clubs. But China allowed and even encouraged further acquisitions of businesses with technologies that could offer geopolitical advantages, including investments in overseas businesses involved in aircraft production, robotics, artificial intelligence and heavy manufacturing.The latest move from Washington comes at a rare moment of vulnerability for the Chinese economy. Consumer prices in China, after barely rising for the previous several months, fell in July for the first time in more than two years, the country’s National Bureau of Statistics announced on Wednesday.While Chinese cities and some businesses have declared 2023 a “Year ›of Investing in China” in hopes of a post-Covid revival of their local economies, President Xi Jinping has created an environment that has made many American venture capital firms and other investors more cautious.Western companies that assess investment risk, like the Mintz Group, have been investigated and in some cases their offices have been raided. A Japanese executive was accused of espionage, and a new anti-espionage law has raised fears that ordinary business activities would be viewed by China as spying.The Biden administration’s previous moves to restrain sensitive economic relationships have taken a toll. China’s telecommunications champion, Huawei, has been almost completely blocked from the U.S. market, and American allies, starting with Australia, are ripping Huawei equipment out of their networks. China Telecom was banned by the Federal Communications Commission, which said it “is subject to exploitation, influence and control by the Chinese government.”At the same time, the United States — with the somewhat reluctant help of the Dutch government, Japan and South Korea — has gone to extraordinary lengths to prevent China from building up its own domestic capability to manufacture the most high-end microelectronics by itself.Washington has banned the export of the multimillion-dollar lithography equipment used to produce chips in hopes of limiting China’s progress while the United States tries to restore its own semiconductor industry. Taken together, it is an unprecedented effort to slow an adversary’s capabilities while speeding America’s own investment.Keith Bradsher More

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    Amazon to Meet Regulators as U.S. Considers Possible Antitrust Suit

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    Amazon’s meetings with the Federal Trade Commission, known as “last rites” meetings, are typically a final step before the agency votes on filing a lawsuit.Amazon is scheduled to meet with members of the Federal Trade Commission next week to discuss an antitrust lawsuit that the agency may be preparing to file to challenge the power of the retailer’s sprawling business, according to a person with knowledge of the plans.The meetings are set to be held with Lina Khan, the F.T.C. chair, and Rebecca Kelly Slaughter and Alvaro Bedoya, who are F.T.C. commissioners, said the person, who spoke on the condition of anonymity because the discussions are confidential.The meetings signal that the F.T.C. is nearing a decision on whether to move forward with a lawsuit alleging that Amazon has violated antimonopoly laws. Such discussions are sometimes known as “last rites” meetings, named after the prayers some Christians receive on their deathbed. The conversations, which are usually one of the final steps before the agency’s commissioners vote on a lawsuit, give the company a chance to make its case.If the F.T.C. files suit, it would be one of the most significant challenges to Amazon’s business in the company’s nearly 30-year history. Amazon, a $1.4 trillion behemoth, has become a major force in the economy. It now owns not just its trademark online store, but the movie studio Metro-Goldwyn-Mayer, the primary care practice One Medical and the high-end grocery chain Whole Foods. It is also one of the world’s largest provider of cloud computing services.The F.T.C. has investigated Amazon’s business for years. The company’s critics and competitors have argued that the once-upstart online bookstore has used its retailing clout to squeeze the merchants that use its platform to sell their wares. U.S. officials have grown increasingly concerned about the influence and reach of giant tech companies like Amazon, Google and Meta, which owns Facebook and Instagram. The Justice Department has filed several antitrust lawsuits against Google, with two scheduled to go to trial next month. The F.T.C. has also sued Meta over accusations that it snuffed out young competitors by buying Instagram and WhatsApp.Some of those efforts have stumbled in the courts. Federal judges declined this year to stop Meta from acquiring a virtual reality start-up and Microsoft from buying the video game powerhouse Activision Blizzard, dooming F.T.C. challenges to both deals. In 2022, the Justice Department also lost its bid to challenge UnitedHealth Group’s plan to buy a health tech company.Stacy Mitchell, a co-executive director of the advocacy organization Institute for Local Self-Reliance and an Amazon critic, said she hoped the F.T.C. would pursue a sweeping case against the tech giant. She said the agency should focus on how Amazon’s control of the retail business — from its store to its logistics network that delivers packages — let it hurt competitors and merchants.“It’s a watershed moment,” she said. “What we need to see from the F.T.C. is a case that targets the core of Amazon’s monopolization strategy.”Amazon has said that it competes aggressively with other retailers and that efforts to regulate its business would only hurt consumers and the businesses that sell products through its site.Under the leadership of Andy Jassy, Amazon’s chief executive, the retailer has recently been in retrenchment mode. The company has cut costs, laying off thousands of workers as growth slumped after a soaring period fueled by the pandemic. Last week, Amazon announced that its revenue in the second quarter of the year had increased 11 percent, to $134.4 billion, beating analysts’ expectations.In June, the F.T.C. sued Amazon in a separate case that accused the company of tricking users into subscribing to its Prime fast-shipping membership program and then making it difficult for them to cancel.Amazon has also faced scrutiny from states and regulators in other countries. The District of Columbia’s attorney general filed a lawsuit against the company in 2021, arguing that it had used unfair pricing policies against merchants on its site. The lawsuit was thrown out by a judge, though the attorney general has tried to revive the case. California filed a similar lawsuit last year that is moving forward. In December, Amazon also reached a deal to end a European Union antitrust investigation by agreeing to change some of its practices.If the F.T.C. sues, it would formally pit Ms. Khan — who has been one of Amazon’s most prominent detractors — against the company.While a law student at Yale, Ms. Khan had argued that Amazon’s growth represented a failure of American antitrust laws, which she said had become myopically focused on consumer prices as a measure of whether businesses were violating the law. Amazon’s prices were often low, she wrote in a widely read 2017 paper, but that failed to account for other ways it could bully players across the economy.The paper’s success supercharged a debate in Washington about the power of the tech giants. In 2019, federal antitrust regulators decided to investigate some of the companies. In keeping with a longstanding practice of dividing responsibilities, the Justice Department agreed to look at Google and Apple while the F.T.C. examined Facebook and Amazon.President Biden named Ms. Khan chair to oversee the F.T.C. — giving her control of the Amazon investigation — roughly two years later. More