In 2018, the Ministry of Economy, Trade, and Industry (METI) published the “Digital Transformation (DX)” report, warning the Japanese economy would suffer from massively slower growth without increased investment in IT hardware and software. Moreover, Japanese companies were encouraged to place a greater emphasis on digital business models. A series of follow- up reports, notably DX Report 2.1, identified four different strategies companies can employ toward transforming to create a digital industry.
More recently, Prime Minister Fumio Kishida has described his vision of a Digital Garden City Nation, where investment in innovative digital technologies would help revitalize regional economies. This includes implementing digital services to solve rural issues.
An essential aspect of digital transformation and innovation is the heavy use of mobile platforms and apps to provide these digital services to users. Mobile apps are essential for the digital transformation of industries such as healthcare, manufacturing, agriculture, energy, and transportation. For example, the digital transformation of health care requires linking doctors, nurses, and other health care professionals wirelessly with patients and with electronic health records. Digital transformation of agriculture requires the use of precision wireless sensors and mobile apps to allow farmers to monitor conditions in the fields for optimal productivity. Digital transformation of manufacturing requires mobile apps that allow factory workers to monitor robots and sophisticated machinery.
How important are mobile apps and mobile platforms for digital transformation and innovation? By PPI’s analysis, roughly 25% of the help-wanted ads for tech workers in Japan mention the need for App Economy skills such as knowledge of the iOS or Android mobile operating systems. That suggests that Japanese employers see a strong need for workers who have the ability to develop and maintain mobile applications.
Indeed, the current mobile application ecosystems, built around the iOS and Android operating systems and the mobile app stores, can provide a good role model for overall digital transformations. These ecosystems have proven successful over the past 15 years in accelerating innovation and encouraging the development of new applications. First, the mobile application ecosystems provide low-cost distribution services for small- and medium-size app developers that they cannot provide themselves. Second, while the iOS and Android ecosystems take somewhat different approaches, the current mobile app stores devote large amounts of technological and human resources to screening out malware and enforcing security standards. The result is that users are willing to download and adopt innovative apps.
Given the effectiveness of the current system in encouraging innovation, this paper addresses the question of whether new regulations now being considered for mobile app stores have a negative impact on security and business activities, with the potential to delay or hinder the digital transformation of the Japanese economy. The problem is that regulators may accidentally undermine the very features of the app stores that make them so effective at encouraging innovation. In particular, regulations that mandate sideloading make it more difficult for the existing app stores to screen for malware and other security issues can lead users to be less trusting of innovative new applications that might control their homes, their cars, their medical devices, and their factories.
Already, Japanese government websites have come under attack by Russian hackers. National security considerations suggest that the security of the mobile application ecosystem should be a high priority for regulators. Less effective screening of new apps, if mandated by government regulators, will also make the digital transformation of the Japanese government more difficult.
• In section 2, “The App Store Ecosystem and Digital Transformation (DX),” we show how app innovation is essential to Japan’s digital transformation (DX). In particular, mobile apps are essential for allowing users to interact with enterprise-level IT systems.
• In section 3, “Quantifying the Economic Importance of the App Store Ecosystem for Digital Transformation and Innovation,” we estimate the contribution of the app store ecosystem to digital transformation. As noted earlier we find that roughly 25% of tech job postings in Japan require app economy skills. Our methodology is described in the Appendix to the paper.
• In section 4, “The Economic Link Between Innovation and a Secure App Store Ecosystem,” we show that developers and consumers both benefit from a secure app store ecosystem. The ability of users to download new apps in safety has fostered innovation, and the expansion of app markets, which in turn had fed back to more innovation.
• In section 5, “Allowing Sideloading and Other New App Store Regulations May Hinder Digital Transformation,” we show how new app store regulations can reduce security
and hurt developers and users. The result, from an economic perspective, will be to hinder the process of digital transformation.
• In section 6, “Why the European model of tech regulation doesn’t work in Japan,” we discuss the European model of tech regulation, and show how it has led to slower productivity growth and less innovation. This has important implications for Japan, which has been considering an even stricter version of the European approach.