Italy, America, and the iPhone

From September 1st to December 19th of last year, I studied abroad in Rome, Italy. The experience changed my life for the better. Starting as a complete beginner in a foreign country and leaving it 110 days later able to read, write, and speak basic Italian was one of the hardest and most rewarding things I’ve ever done. Anyone with the chance to study abroad should do it.

One of the first things I noticed in Rome was that the iPhone is less popular there than I unconsciously assumed it would be. Coming from the US, where iPhones are extremely prevalent in rich and cosmopolitan areas, I was shocked and confused to see so few of them in Rome.

And I didn’t see too many of them elsewhere in Italy, either. In Florence I saw iPhones in the hands of tourists but rarely in the hands of Florentines, and in Todi, a small town in central Italy, I didn’t see a single resident with an iPhone.

The following data from Ben Bajarin confirms what I saw:

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Today, the iPhone is about one-third as popular in Italy as it is in America. During my time abroad, I noticed three cultural differences that explain some of the gap in iPhone ownership between the two countries.

Different Types of Retailers

In the US, Apple can negotiate the right to sell iPhones with Walmart, and by signing one contract, the iPhone becomes available for sale at over 3,000 stores that reach over 100,000,000 people.

By signing one contract, Apple reaches 100,000,000 people. Repeat this over and over again with other large retailers, and pretty soon, Apple has a massive iPhone distribution network. With relatively few work from Apple, tens of millions of people can buy iPhones in stores.

The same dynamic does not apply in Italy. Not only are there far fewer large chains — I don’t remember encountering a single chain comparable to a Target or a Walmart — but, as one of my professors in Italy said, the country is characterized by small businesses, not large ones.

John Schmitt, an economist at the Center for Economic and Policy Research, analyzed data from the Organization for Economic Cooperation and Development and found that 46.6 percent of Italian workers are employed by companies with less than 10 employees, versus 11.1 percent of American workers. Conversely, 18.9 percent of Italians are employed by companies with over 249 employees, versus 52.7 percent of American workers.

OECD’s data is from 2007, yes, but the picture it paints supports my professor’s assertion from a few months ago. Italy is characterized by small businesses, not large ones.

Because of this, there isn’t an “easy” iPhone distribution network in Italy. Apple can’t negotiate with one large company and then all of a sudden tens of millions of people can buy an iPhone in a store. Instead, Apple has to negotiate contracts with thousands of smaller companies to have the same distributional footprint.

And even then, there’s no guarantee that the small, neighborhood cell phone store will have a plethora of iPhones in stock. If a storeowner has access to relatively little capital, is he going to invest it in one $835 iPhone, or four $200 Android phones?

The lack of an “easy” iPhone distribution network in Italy is one of the reasons the iPhone is about one-third as popular there as it is in America. If Italy had large chains the way America does, Apple would have an “easy” iPhone distribution network in Italy, more people could buy an iPhone in a store there, and the iPhone’s marketshare in Italy would be higher.

Different Status Symbol Hierarchies

Before studying abroad, I unconsciously assumed the iPhone would be a status symbol in Italy the way it is in the US. I was partly wrong. In Italy, the iPhone is a status symbol, but it’s less important a status symbol than it is in America.

In Italy, a handbag, a messenger bag, a pair of shoes, or a watch are more important status symbols than a phone. If an Italian can afford either a nice bag, a nice pair of shoes, a nice watch, or an iPhone, they are far more likely to choose the bag, the shoes, or the watch than an American in the same situation. In the Italian hierarchy of status symbols, a phone is one of the last things to buy. In the American hierarchy, it’s one of the first.

This cultural difference no doubt negatively affects iPhone sales in Italy. The iPhone’s lower placement on the status symbol hierarchy leads to fewer iPhone sales in Italy compared to the US, all other things equal, because less people will buy an iPhone for status reasons. If the iPhone were as important a status symbol in Italy as it is in the US, the iPhone’s marketshare in Italy would be higher.

Different Cost

In the US, a base model iPhone 6S, with 16GB of storage, costs $649. In Italy, it costs €779, or $846.48 at today’s exchange rate. In absolute terms, the iPhone costs nearly $200 more in Italy than it does in the US. But that doesn’t tell the whole story.

Italy is poorer than the US, both in cumulative and per-person measures. In 2014, the US’s GDP was $17.62 trillion, and Italy’s was $2.141 trillion. In 2012, US median household income was $43,585 and in Italy it was $20,085.

(Note: 2012 median household income is the most recent data I could find.)

So the average household in the US makes around $43,585 and has to pay $649 for an iPhone —1.49 percent of its income. In Italy the average household makes around $20,085 and has to pay $846.48 for an iPhone — 4.21 percent of its income. In relative terms, iPhones cost more than two-and-a-half times as much in Italy as they do in the US!

No doubt this explains part of the gap in iPhone ownership between the two countries. If the iPhone cost the same 1.49 percent of household income in Italy as it does in the US, more Italians would buy iPhones, and the iPhone’s marketshare in Italy would be higher.

Conclusion

While studying abroad in Rome, I noticed three cultural differences that help explain why the iPhone is about one-third as popular in Italy as it is in America. For one, it’s extremely hard for Apple to create a large iPhone distribution network in Italy because of the country’s lack of chain retailers. Additionally, the iPhone’s lower placement on Italy’s status symbol hierarchy leads to fewer iPhone sales. And when you consider income, the iPhone costs more than two-and-a-half times as much in Italy as it does in the US. These facets of Italian culture hinder the iPhone’s popularity in Italy. It will be fascinating to see if Apple can overcome them.