David Farrar has the best analysis I've seen on the reasons why National lost the Northland by-election. I think reason 3 - Mike Sabin's departure - is the strongest. The feeling I picked up from National supporters in Northland was that the vacuum of information about Sabin's departure - which inevitably was filled with rumour and conjecture - really irritated even the most loyal supporters.
The question now is what happens in 2017. The preliminary results point to Peter's win being made possible by a large number of Labour voters giving Peters their electorate vote, as Andrew Little essentially instructed them to do.
It was a smart move by Little, and a clear demonstration that he understands MMP. But it creates a two-part problem for Labour that will be a headache in 2017: firstly it means they lose the ability to whack National over deals in Epsom and Ohariu. Morally their position is degraded - the media will simply point out they accommodated Winston where it suited them, to stick it to the government. But I suspect the public understands this is part and parcel of MMP anyway.
Secondly it means that the deal will need to be repeated in 2017 to ensure a similar result. This will be even more imperative if the rumour (Peters wanted to capture an electorate seat to guarantee NZ First's survival, similar to Act's win in Epsom in 2005) that Northland is part of Winston Peters exit strategy are true. If Labour wants an alternative to the Greens (and they should) then NZ First is their best bet. That means Willow Jean Prime will need to take another loss on the chin for Labour - and that risks a Margaret Hawkeswood style melt-down.*
My prediction is that Winston will now work to position himself alongside National, to keep Little and Labour on their toes. That way he might be able to extract more - perhaps even the baubles of office - if he finds himself as Kingmaker again in 2017.
*Margaret Hawkeswood was Labour's candidate for Coromandel in 1999; she was very unhappy when Helen Clark told Labour supporters there to give their electorate vote to Jeanette Fitzsimons (Greens co-leader) to get the Greens into Parliament. On election night that worked; however after the counting of the special votes the Greens got enough votes to get over the 5% party vote threshold.