Connected Consumer Q3: Netflix fumbles; Kindle Fire shines

1. Summary

Netflix shot itself in both feet with its clumsy public handling of a price hike and spinoff of its DVD business this quarter. But with the company’s future growth likely to come increasingly from streaming-only international markets, the U.S. DVD operation would only become more of a drag on margins over time. So, the spin-off may eventually pay off.

Facebook unveiled a major revamp of its news feed and user profile features, including the addition of real-time sharing of activity. The moves brought pushback from some users and sparked calls for investigations by the FTC and Congress. But the changes could also help position Facebook as a major media and advertising platform, posing a significant competitive challenge to Google, Yahoo, Apple and others.

Speaking of media platforms, Amazon unveiled its new $199, tablet-like Kindle Fire, posing perhaps the strongest challenge yet to the iPad’s overwhelming dominance of the tablet market. As part of the Kindle Fire initiative, which includes its new Silk browser, the e-commerce giant for the first time is attempting to leverage its massive Amazon Web Services infrastructure for consumer use.

While Amazon was looking up, the daily online coupon business is going down, imploding under the weight of too much competition and too little value delivered to merchants. Pre-IPO valuations for market leaders Groupon and LivingSocial have collapsed, throwing the fate of those stock offerings into doubt.

The traditional pay-TV business, meanwhile, remains as stubbornly undisrupted as ever. New efforts by Google and Apple could yet change that, but the networks still hold most of the cards.