Nintendo Hates Success and Money

Last we heard, the NES Classic Edition had sold 1.5 million units through the end of December, not nearly enough to meet apparently healthy demand during the holiday season and beyond. Now that the company has officially discontinued the plug-and-play box, Nintendo of America President Reggie Fils-Aime tells Time magazine it sold 2.3 million systems overall in just under six months.
The robust success of the NES Classic Edition really does seem to have caught Nintendo by surprise. "We had originally planned for this to be a product for last holiday," Fils-Aime told Time. "We just didn't anticipate how incredible the response would be. Once we saw that response, we added shipments and extended the product for as long as we could to meet more of that consumer demand."

It's hard to underestimate how drastically Nintendo failed to comprehend what a hit they had on their hands. First off, to think that 1.5 million units would satiate demand for a fist full of nostalgia at the best gift price of all time of $60 is just a complete lack of market awareness. To crank out ~800k more units in the following 90ish days once you know you can effectively print money is just absurd.

People will try and defend this all saying that Nintendo is better off selling the games in the virtual console for the $400 Switch. Here's the thing, the margins for Nintendo on those little boxes had to be insane. There is almost no labor involved and the hardware is beyond basic. Think of how much work Nintendo puts into each of their software titles, which sell at $60 at most. There's no doubt that the hardest part had to be getting all the licensing rights for the 30 games to be distributed, and they had already done all that work. It's basically all profit!

Nintendo has been offering these old titles on the virtual consoles for their various systems for about a decade now. A very small portion of their customer base have been spending $60, or even $40, on NES games which sell at $5 and have frequently been available on sale for significantly less.

It is just as likely that the Nintendo Classic would serve as a halo device which gets people psyched and ready to buy a Switch where they can have access to Nintendo's ever growing library of games on the go. Nintendo has left a huge amount of money on the table, again, and these decisions have a cumulative effect on the relevance of the company.