Why Nintendo discontinuing the NES Classic might be a good thing

Nintendo has announced that they are discontinuing the NES Classic, the $60 miniature game system with 30 of Nintendo's best 80s era games, which has been going for $200+ on eBay (much higher when it first came out). This has a lot of would-be buyers pretty pissed off. I'm here to tell you why this might actually be a good thing.

TL;DR: NES Classic proved demand for classic games, and could be the catalyst for finally getting them as digital downloads for the Nintendo Switch, and possibly Apple TV.


Why The NES Classic Exists

The fact that the NES Classic exists at all is either a market test or (I think much more likely) an accident of timing. Either way, the fact that the demand was so much higher than the supply (ie, their expecte demand) that it will likely lead to bigger and better things in the near future. Follow my logic on this...

Last year, Nintendo was hard at work trying to put the finishing touches on their new flagship gaming system, the Nintendo Switch. By summer, it was becoming increasingly clear that they were not going to be able to meet the obvious "on shelves by Black Friday" launch target. I do not envy the product manager who had to break it to the Nintendo execs that the Switch wouldn't be ready to launch until March!

That left Nintendo with a whole holiday season of nothing on the shelves, nothing to talk about in the media, and a whole lot of tech journalists speculating on what ever happened to the new Nintendo flagship system that had been rumored. At that point, the best thing they could hope for would be some other Nintendo product that would take very little time to get to market, but would keep the fans and media busy, while they devoted all their resources to getting the Switch out the door.

Game systems that put a bunch of old-school games onto a nostalgic piece of miniature hardware are nothing new. Atari released a series of Atari 2600 style controllers with classic games built into them in 2003, followed by a series of "Atari Flashback" retro consoles over the next 8 years. I haven't been able to find sales numbers for these, but they don't appear to have been a major cash cow. When they were initially released, I remember a few weeks of "oh, that's cool!" reactions from folks, but no big rush to buy them. They were just another nifty thing to see on ThinkGeek, and something you currently see stacks of in the discount aisle at Staples.

You can bet that there have been no shortage of manufacturers pitching Nintendo on making a similar product with their games. But whether due to the poor sales of the Atari versions or Nintendo's infamous protectiveness over their classic games, no Nintendo version of this had yet been approved.

So there they are, in the summer of 2016. They just found out Switch won't be ready in time for the holidays. And their execs are probably fuming mad about it. Then some enterprising product manager pipes up. "What about that miniature NES system they were pitching to us years ago? Sure, it won't sell a lot of systems. But it will give the fans and the press something fun to chew on while we concentrate on the Switch. We already have the prototype the manufacturer used to pitch it to us. Give me what we expected to spend on marketing the Switch in Q4, and I can get 50,000 of these on the shelf for the holidays. PR problem solved." If this happened the way I imagine it did, I hope that person got one hell of a bonus.


Proving Demand For Classic Game Titles

Of course, Atari isn't Nintendo. People still love Atari games out of nostalgia. But most of their games just don't retain their value over the decades. But Nintendo games do. Even the games from the first generatio NES system are still incredibly fun to play today. And the characters franchises they launched are still popular in today's games, so there's the added pull of kids who grew up on Mari Cart and the much fancier Zelda games to want to go back and see where they started.

If they set their production numbers low because they expected Atari-level sales, you can imagine how pleased they would have been from the actual demand. They sold 196,000 units in the first month, and 1.5 million by the end of 2016. But all of their resources were dedicated to getting their new flagship Nintendo Switch ready for the March 2017 launch date. Any product managers or supply chain managers who might have been able to address the NES Classic supply problem were too busy with the Switch to do anything about it. If anything, they now had even more incentive to make sure the supply for the Switch would meet their now-inflated demand estimates. It just wouldn't have made any sense to spend any more time than necessary on the stop-gap stunt, no matter how high the demand.


Discontinuing the NES Classic

The the Switch launched. They sold 2 million units in the first month, making it the fastest selling system they've ever made. And, more relevant to our speculation here, a lot of product management resources are now free to start thinking about something other than Switch. With an Apple partnership on the table, a new flagship game system on the market, and newfound appreciation for how high the demand for the classic Nintendo games are, what comes next?

Continuing to sell the NES Classic beside the Nintendo Switch would make no sense. They would be competing for shelf space and supply chain resources, it would be confusing to consumers, and they'd be limited to only monetizing those ~30 games that are burnt into the hardware of the Classic. Nope. Anyone with half a bit of sense can see pretty quickly that the NES Classic, as it exists now, absolutely needs to be retired, and take its place as a fun footnote in Nintendo's history.


Paving The Way for Digital Downloads

BUT the thing most people love about the NES Classic isn't its hardware. It's the fact that they have a sleek, easy, (and legal) way to play their favorite classic games. And the fact that the NES Classic was as popular as it was will mostly likely give us far more of that than the NES Classic itself possibly could have.

People are currently willing to pau $200 for 30 NES games on the open market. Nintendo only sees $60 of that. That's before taking out the cost of manufacturing, distribution, etc. And that's limited to 30 games from their archive. Clearly, there's a lot of money being left on the table.

The day the new Apple TV was released, with its wireless game controller, I said that I'd kill to be able to buy individual classic Nintendo games (and a NES style controller) from the Apple App Store. Price the headline titles at $5 and the less popular ones at $2 and they'd fly off the virtual shelves. And with Nintendo's new partnership with Apple, this is undoubtedly what Apple is hoping for. But, of course, that would mean Nintendo giving Apple 30% of the revenue that gold rush would generate. So it's a great solution for consumers, but not so much for Nintendo.

Ahh, but now they have their own brand new flagship console. Forget the Apple TV. Now there really isn't any reason not to build their own version of the app store, sell the classic games directly to the Switch owners, and not only keep the whole revenue gold rush from the games, but use it as an additional feature to push sales of the Switch itself.

This isn't a feature you'd want to include at launch. If you know there's already going to be a high enough demand that you'll be struggling to meet supply, you hold off on this. Let the hardcore gamers hankering for their new Zelda game get the first batch. The following holiday season, when supply has caught up, demand is tapering off, and you've had time to QA the living hell out of your new app store, that's when you make every 80s era gamer's dreams come true and release the back catalog for digital download (slowly, over time, so there’s always something new to pick up).

Then you wait about six months. By then, the majority of people who would be willing to buy a new game system just for access to the classic games have had a chance to buy a Switch, fill their library with their favorite games, and get locked into your higher-margin platform. That's when you put them up in the Apple App Store as well, to extend the reach to the wider audience of people who aren't willing to buy a separate game system, but would be more than happy to buy the games for their existing Apple TV.


This is what I expect is going through Nintendo product managers' minds. I really, really hope I'm right. The time is ripe for Nintendo to open up their back catalog and kick of a resurgence of Nintendo fanaticism.

Comparing iPhone Purchase Plan Options

With the roll-out of the iPhone 6S and Apple's introduction of their iPhone Upgrade Program, there has been some confusion about what the iPhone Upgrade Program really means, and what the best way to buy an iPhone really is. Here, I attempt to clarify the former, and crunch the numbers on the latter.


iPhone Upgrade Program

Apple's iPhone Upgrade Program is for people who want to get the newest iPhone every year, at a predictable cost. You pay $32/month ($384/year) for the latest iPhone base model (or $37-45/month for upgraded models), which includes AppleCare+, and every year you can upgrade to the latest, greatest iPhone.

The thing that is confusing a lot of people is that this is technically a 24 month contract. But it has a "give back the phone and start over" option that kicks in at 12 months. After paying on your phone for a year, you have the choice of keeping your old phone, completing the 2 year contract, and then owning it, or giving back the phone, getting a brand new one, and starting over with a new phone and a new 24 month contact.

So if you buy an iPhone 6S today, you'd pay $384 over the next 12 months. Then, if you're not impressed with anything in the iPhone 7, you could keep your 6S, pay another $384 over the next 12 months, and then own your 6S outright by the time the 7S comes out. Or, after that first 12 months, you can give your iPhone 6S back, get an iPhone 7, and start a new 24 month contact, leaving you with the same "keep it or trade it in" decision when the 7S comes out.

This is very similar to how many of the carrier payment plans (like AT&T Next) work, except that carrier plans can be spread out over 20, 24, or 30 months, with varying upgrade timelines. The main value difference between Apple's plan and the carrier plans is that Apple's comes with AppleCare+ included in the price.


Total Cost / Benefit Of Different Buying Options

When we consider what the "best" way to buy a phone is, we're really looking at the total cost of ownership of the phone, balanced against the total benefit we get from the phone. The benefit we each get from always having the latest phone versus a slightly older phone is hard to quantify, and will likely change year to year based on what new features are introduced. But it's pretty easy to quantify the cost of ownership, so we'll start there. And once we know the cost of ownership difference, it should make the yearly decision of whether or not to upgrade much simpler.

Total cost of ownership of an iPhone (or anything else) includes the total amount you've paid to own it, minus the amount you can sell it for when you're done owning it. The table below shows the total yearly cost of ownership, averaged over a 4 year period, for each of the different buying options, three trade-in frequencies, and for each type of iPhone (entry-level 16GB, mid-level 64GB, and upper-level 128GB). Note that there are two versions of "Buy Cash," the first assuming you sell the phone for full market value, the second assuming you sell it to Gazelle or another convenient buy-back option for less than full market value.


Scroll to the end of the post if you want to see how I did the math.


TLDR Summary

  • If you plan to upgrade every year OR plan to get AppleCare+, Apple's iPhone Upgrade Program is the best way to go.
     

  • If you plan to upgrade every other year, and aren't interested in AppleCare+, you save about $60/year over Apple's plan by going with a 2-year payment plan from AT&T or Verizon (or ~$30/year savings if you upgrade every 4 years). This is probably where most people fall.
     

  • Buying cash only makes sense if you plan to upgrade every year, or plan to always stay a model or two behind. But even then, it's the highest-hassle option, and any savings can quickly disappear if you don't get a good price when selling your used phones.
     

  • Subsidized plans are a horrible idea. Almost no one should use them.


Which iPhone Should You Purchase?

Obviously, most of the decision on which specific model you want to buy will be dependent upon how you use your phone, what size screen you like, and which colors you prefer. But looking at the data here should give you a much better idea of how much extra per year you'd actually be paying for different memory options. Even though the purchase price of the phone is a $100 difference between each memory level, after accounting for resale value and how often you upgrade, the per-year average is actually much smaller.

Upgrading from 16GB to 64GB is a pretty consistent ~$50/year cost if you upgrade every year, ~$38 if you upgrade every other year, or ~$19 if you upgrade every 4 years. Upgrading from 64GB to 128GB is a about the same price difference for a slightly larger data increase, but only useful to a smaller set of users. Considering the pain of running out of room and having to delete things if you take a lot of photos or use a lot of apps, the upgrade to 64GB will probably make a lot of sense for most people. The folks for whom the 128GB upgrade makes sense probably already know who they are.


Which iPhone Payment Plan Should You Use?

To help you make sense of all the numbers in the table, I'll summarize how each of the payment options works, and who which one is most likely to be the best option for which kinds of users.
 

  • Cash Upfront
    The most straight-forward way to buy an iPhone is to pay the full cost of the phone every time you buy one. No carrier subsidies, no payment plans, just plop the whole $650-850 on a credit card and it's yours to do with as you please. If you don't upgrade every year, this ends up costing the same as most of the carrier payment plans. It can also be the least expensive yearly cost of ownership option, with two significant caveats.

    Obviously, the first caveat is that you need to be financially well-off enough that you can devote that much money toward a phone purchase, not only when you initially buy the phone, but also every time you upgrade, as you'll need to buy your new phone and transfer your data before you can turn around and resell the old phone to recoup part of the cost.

    The second caveat is that the cost savings from this method is dependent upon getting a fair market value each time you resell your old phone to upgrade to the new one. If you're an ace at selling used phones on Craigslist or eBay, this option can save you quite a bit over most of the other options. But if you rely on buy-back programs like the ones provided by the carriers, or on sites like Gazelle.com, at far below market value, this actually becomes the most expensive option.

    Who should buy this way?
    If you plan to upgrade every year, you don't plan to get AppleCare+, you're good at reselling your old phones, don't mind that extra hassle, and you have enough of a financial cushion to afford the buy-in price, this can be the cheapest way to buy your iPhones. If any of the above don't apply to you, this option probably isn't worth the hassle.
     

  • Subsidized Carrier Plan
    While most people couldn't tell you what a "subsidized carrier plan" is, this is actually how most of us have bought our iPhones in the past. The carriers give us an unnaturally low price on the phone, lock us into a 2-year contract, and inflate our monthly bill enough to make back the difference over time. For AT&T, the difference between a subsidized and unsubsidized plan is $25/month. So your $200 subsidized iPhone actually costs you $800 over the two years of your contract, significantly higher than the $650 it would have cost you to buy it unsubsidized.

    Even worse, most carriers don't even drop your phone bill back to its normal level, even after your 2 year contact ends. So if you think you're saving money by keeping your $200 subsidized phone for 4 years, you may be woefully mistaken.

    Who should buy this way?
    This is the most expensive way to buy an iPhone. It is also the least flexible, as you're stuck in a 2-year contract without the option to upgrade if a really amazing new phone hits the market while you're in the middle of a contact. Almost no one should buy their phone this way.

    Fortunately, most of the major carriers are starting to phase out subsidized phone plans, in favor of payment plans. (More on those next.) What I haven't been able to determine yet is why carriers don't seem to like the confusing subsidized plans that appear to be cheaper to those not in the know, but end up making them more money in the long run. If anyone knows, I'd love to understand their thinking better.
     

  • Carrier Payment Plan
    Carriers are moving away from subsidized plans, but they still want to provide a low cost way for people to buy in to a new iPhone. So most of them are offering payment plans, where you don't pay anything up front to purchase the phone, but instead pay the full purchase price in installments over 20-30 months. This gets you most of the benefits of the buy-it-cash method, but with lower up-front cost. But there are catches.

    Verizon's plan breaks the cost of the phone into 24 equal payments. This makes it very similar to the Apple plan, but without the AppleCare+. However, Verizon does not offer the ability to upgrade mid-contract (yet), so there is no option for upgrading every year. (Note: I left the calculation for a 12-month upgrade in the chart just as a benchmark against Apple's plan, should Verizon eventually add this feature.)

    The AT&T Next payment plan gets a little trickier. It does offer a 12 month upgrade option, but it breaks the cost of the phone into 20 payments rather than 24. This means you're paying 60% of the cost of the phone in the first year and the remaining 40% the second year. That doesn't make a difference if you're upgrading every other year, but it means you're paying an extra 10% of the purchase price of the phone every year if you're upgrading ever year. This eliminates most of the savings yearly upgraders would otherwise get over the Apple plan.

    If you rely on lower-than-market-value buy-back options for selling your old phones, you do run the risk of carrier plans being a bit more expensive than what is shown in the table (which assumes selling it for market value). If you upgrade every year, you never have a phone to sell, so it's really only every other year (or longer) upgraders that this would be an issue for. This usually comes down to a difference of about $100 in sale price if you're upgrading every other year, or $50 if it's every 4 years (or an annual average difference of $50 or $12). So, seller beware.

    Who should buy this way?
    If you plan to upgrade every year, Verizon won't let you and AT&T's plan is only ~$20 less per year than Apple's plan, without the $130/year added value of AppleCare+. If you plan to upgrade every other year (or less often), and you don't plan to buy AppleCare+, a payment plan from AT&T or Verizon will save you ~$60/year over Apple's plan.

    Note 1: Sprint & T-Mobile: I wasn't able to find reliable data on Sprint or T-Mobile's payment plans. If you get decent service form them in your area, you may want to crunch those numbers for yourself and see how they stack up. You can download my spreadsheet at the bottom of the post, to get you started.

    Note 2: AT&T Unlimited: If you have an AT&T account that is grandfathered into unlimited data, and you use your phone even moderately, it's a really, really bad idea to sign up for ANY plan that will move you off of unlimited. If you have one of these plans, always buy your phone from an AT&T-owned AT&T store, NEVER from an AT&T Authorized Reseller. I've known WAY too many people who were straight up lied to by them, and they will often boot your off of Unlimited even if there was a way you could have stayed on it. Go to a real AT&T store and make double and triple sure that whatever payment plan you choose will not interfere with your unlimited account.

    Note 3: For Bargain Shoppers: A few people pointed out that they do like to upgrade every year, but not to the newest model. Instead, they buy a 1-year old iPhone used every year, and sell their 2-year old used one to offset the cost. If you're good at selling used phones for fair market value, this comes out to about $200/year, definitely lower than any other option. If you rely on below-market-value trade-in options, it climbs to ~$300/year, more expensive than the carrier contracts that give you a brand new one every other year.
     

  • Apple Payment Plan
    Apple's new iPhone Upgrade Plan is very similar to the payment plans provided by the carriers, but without the hidden tricks. The main differences are the simplicity of Apple's plan, and that AppleCare+ is included in the price.

    AppleCare+ normally costs an additional $130 each time you buy a new phone, so this can be a pretty significant savings if you upgrade every year, or a modest savings if you upgrade less often. Apple's plan is also much simpler than the carrier plans, which is a plus all on its own.

    Who should buy this way?
    If you plan to upgrade every year, or if you plan to buy AppleCare+ for your phone, Apple's iPhone Upgrade Plan is currently the best way to go. It gives you the best value for your dollar, as well as the simplest plan.
     

I hope this helps clarify things and give you a better idea of which option might be best for you.

For those who want to see how I did my math, and potentially help me spot any errors I might have made, feel free to keep reading...

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