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Your connected device habit costs an average of $3,800 a year

Businesswoman talking on cell phone in cityBusinesswoman talking on cell phone in city

By the end of this year globally we will have about 16 billion devices connected to the Internet and Americans will spend an average of $3,800 on them according to data out this week from Chetan Sharma Consulting. However, of that $3,800 only $800 of it is on the devices and the rest is on recurring access charges.

Sharma is an independent analyst covering the telecommunications industry who has a long history of predicting the future for the telcos, and figuring out how their business models need to shift (sometimes before they do). His mini study on connected devices focused on their proliferation in the home and how we pay for them. The biggest winners heading into the Internet of things isn’t a surprise on the connectivity side, it’s cellular broadband and wired broadband, but consumers might be piqued to know that while their spending on cable television and mobile voice has dropped, their overall spending on communications on the go and at home has remained the same and even increased slightly.

Image courtesy of Chetan Sharma

Sharma even estimates in an interview with Fortune, that the spending on broadband might surpass the spending on cable in the 2018 or 2019 time frame, which means that the fears of cord cutting will no longer worry pay TV providers as the total revenue they get from subscribers each month will remain the same.

And yet, these charges don’t reflect the money that consumers shell out for Internet-related services such as Dropbox for storage or Netflix for TV. So as Sharma notes, the overall $3,000 per year on average that people are paying for access stays relatively flat and the mix may change, but the consumer is paying more companies more dollars for services and devices related to their connected lifestyle. It’s just that those dollars so far aren’t going to the broadband and telecommunications companies yet.

Instead, the revenue is going to the aforementioned services companies such as Netflix, Dropbox, Skype, etc. and the device makers. Sharma anticipates that $800 average in device spending will increase as people snap up connected home devices, cars, robots, drones and wearables. However, he doesn’t believe we’ll see the rise of a single winner-take-all device like the smartphone or the PC again. “The next wave of revenue will come from hundreds of tiny revenue streams,” Sharma said. “You’ll get smaller islands of categories that in and of themselves may not be huge, and maybe 10 years from now they could be sizable when taken together.”

That’s a very different business model, innovation model and even talent-spotting model for investors and corporate M&A departments. It’s easy to say that the Internet of things is the the next big thing, but when you realize that there will be hundreds of different device success stories instead of one it clarifies why everyone is fighting to be the OS layer and why no one wants to play nicely on standards yet.

Meanwhile, consumers, should get ready to keep paying more for devices and services and about the same for connectivity.