A government panel in Japan has drafted regulations that will force Apple and Google to allow users to download apps outside of their own app stores. The law will also require the companies to avoid giving their own services preferential treatment.

The move follows a report that highlighted the critical role mobile ecosystems play and the need for more options and fair competition.

App Store Duopoly

The Japanese government is adding its voice to the growing chorus of nations urging Apple and Google to diversify their smartphone apps marketplaces. The move comes as part of a new study by the country’s Fair Trade Commission on mobile ecosystems.

The commission found that Apple and Google’s effective duopoly of the mobile operating system (OS) and app stores markets prevents sufficient competition, in part by keeping fees high. It also hinders innovation in smartphone OS apps and restricts consumer choice, according to the report.

The government’s proposed law would require the dominant mobile OS providers to allow third-party app stores if they are deemed safe. The proposed regulation would also force Apple and Google to offer alternative payments systems for developers. This is similar to the way that the EU’s 2022 Digital Markets legislation aims to reform how large online platforms operate by giving them public utilities-style regulation and platform neutrality. The government says that it hopes the measures will help reduce the influence of tech giants in the development of new smartphones.

Third-Party App Stores

The new regulations will compel Apple and Google to let users download apps through other app stores. They will also ban them from imposing excessive fees on app developers or restricting their payments systems. This will help stoke competition in the smartphone app market, which is currently controlled by the two giants.

Currently, Apple’s walled garden makes it impossible for users to download apps outside of its own App Store. While 97% of Android apps are downloaded from Google Play, it still faces “limited competitive pressure” from other app stores. The report notes that sideloading (which isn’t possible on iOS) exerts similar competitive pressure.

Apple has opposed similar arrangements overseas, citing security concerns over third party access to its App Store and payment processing systems. But it seems likely that it will have to budge in the face of such a strong legal challenge. Increased complexity in the marketplace won’t necessarily benefit consumers, though. It’s more likely to create a series of balkanized fiefdoms that will cater to big firms seeking user data and criminals operating malware sites.

Third-Party Payments

Various countries have asked Apple and Google to allow app installation options outside their official app stores and let developers use alternative payment systems. Apple CEO Tim Cook cites privacy and security as reasons why his company doesn’t do this.

He also notes that the system could make it easier for people to steal apps. But if Apple were forced to change this, it would probably have to make things even more difficult for developers who want to adopt third-party systems. They might have to show elaborative warnings, for example, or submit a special app file that uses a specific payment system in order to comply with the law.

And that might prompt a classic economic debate about what reasonable fees are for app-store services. It might even lead to the regulation of platform fees, a move that could damage network effects and increase costs for developers and consumers alike. If that happens, it will be because competition authorities have lost sight of the costs and benefits of multi-sided market rules.

Privacy

The right to privacy (Kojin Joho Toriatsukai) is one of the fundamental rights of citizens in Japan. It provides that private life must be protected against the exercise of public authority.

Various countries are asking tech giants like Apple and Google to assume an open platform and allow app installation options from other sources. In Europe, the Digital Markets Act will compel these companies to enable alternative payment systems on their platforms as well.

However, this is not an easy task. For example, Apple CEO Tim Cook cites security and privacy as two reasons why the company does not allow app downloads outside its App Store.

If you are a business that handles Japanese personal data, or plan to do so, you should incorporate compliance with the Amended APPI into your broader data management system. As a general rule, you must obtain the consent of data subjects before processing their personal information and notify them promptly after doing so.