Ebook Market of The

Valitse kohde. - VALITSE KOHDE. VALITSE KOHDE.

EBOOK MARKET OF THE

USA Litnet case

Author/s: Andrii Tytenko

eSAVONIA UNIVERSITY OF APPLIED SCIENCES THESIS Abstract

Field of Study Social Sciences, Business and Administration Degree Programme Degree Programme in International Business Author(s) Andrii Tytenko Title of Thesis eBook market of the USA: Litnet case Date 14.12.2019 Pages/Appendices 49 Supervisor(s) Virpi Oksanen, Ari Pitkänen

Client Organisation /Partners Litnet

Abstract The eBook market in the USA is the largest English-speaking eBook market. The purpose of the thesis was to do profound research on the eBook market in the USA for the case company Litnet. The importance of this research derives from the case company’s interest in the market.

The research conducted for Litnet was made by utilizing several marketing research frameworks such as PEST analysis, Porter’s Five Forces model, and SWOT analysis. Both qualitative and quantitative research methods were applied in the study.

The research discovered that the overall attractiveness of the US market is high for Litnet. The research showed that the industry infrastructure is favourable. The market is characterized by a high level of rivalry and low entrance barriers. There are different models of eBooks distribution, such as traditional per copy sales, subscription services, and pay per chapter services. The market may experience pressure from audiobooks and print books sales. Litnet may use the differentiation strategy to escape the direct competition in the market. The research gives an overview of the eBook market in the USA and analyses prerequisites for Litnet's possible market strategies.

Keywords Market research, eBooks, literature, literary market, USA, eCommerce, PEST, Porter’s Five Forces, SWOT

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CONTENTS

1 INTRODUCTION ...... 4

2 CONDUCTING MARKET RESEARCH ...... 5

2.1 Types of research and sources ...... 5

2.2 Research paradigms and methods ...... 6

2.3 PEST analysis theory ...... 7

2.4 Porter’s Five Forces model theory ...... 8

2.5 SWOT analysis theory ...... 9

3 CONDUCTING MARKET RESEARCH FOR LITNET ...... 12

3.1 Litnet overview ...... 12

3.2 Conducting PEST analysis for Litnet ...... 13

3.2.1 Political and Economic environments ...... 13

3.2.2 Social and Technological environments ...... 19

3.2.3 PEST analysis summary ...... 25

3.3 Competitors overview ...... 26

3.4 Creating Porter’s Five Forces model for the case company ...... 34

3.5 Conducting a SWOT analysis for Litnet ...... 37

4 SUMMARY ...... 41

REFERENCES ...... 43

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1 INTRODUCTION

The USA eBook market is the largest English-speaking eBook market. It reached $5,4 billion in 2018, and it is projected to continue growing (Statista 2019b). It is a relatively young market that grew from the traditional printed books market. The eBooks appeared as a result of advancement in the customer electronic devices and correspond with the global trend of digitalization.

The purpose of the thesis is to create profound research on the eBook market of the USA for the case company Litnet. The importance of this research derives from the case company’s needs. More specifically, the company is interested in the successful growth in the English-speaking eBook markets and the USA is the largest of them all. Therefore, the thesis topic was chosen as a result of the Litnet’s development needs, which were understood during the professional internship in the company. The company is based in Europe, so there could be some lack of understanding for successful future operations of the distant market as the one of the USA. The topic can also present some interest to those who work closely with the USA eCommerce market, and literature market in general because the research will also investigate some of their aspects.

In this research, the academic theory base is reviewed and applied. The research for Litnet will be made utilizing marketing research frameworks such as PEST analysis, Porter’s Five Forces model, and SWOT analysis. There will be applied both qualitative and quantitative research methods for the study. The research will be commenced with the overview of the case company Litnet to get an understanding of the company's operations and position in the different markets. The PEST analysis will give a clear understanding of the political, economic, social, and technological environment of the USA eBook market. The competitor's overview will discover the main industry actors. Porter's Five Forces model will help to better understand the eBook industry. The SWOT analysis will provide a practical implication of the previously discovered external analysis and will connect it to the Lit- net’s internal environment while suggesting some strategies and helping to avoid possible mistakes. All the findings and the research process will be later summarized and reflected in the Conclusions part of the thesis.

The findings of the research shall be used further for planning and implementing practical decisions based on reliable evidence. It shall allow managers to make better decisions connected to business development and operating in the USA market. The meaningful market intelligence gained through the research could help to make new strategies and to facilitate Litnet with establishing itself in the market.

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2 CONDUCTING MARKET RESEARCH

In this work, market research will be made. For this reason, the needed theory base has to be reviewed before it can be applied. The process of research means collecting, analyzing, and interpret- ing information to obtain new knowledge about the subject (Leedy & Ormrod 2001, 2).

2.1 Types of research and sources

Research can be of two types – primary and secondary research. Primary research means that new knowledge is derived from first-hand interactions with a subject (observation, examination, investigation). Secondary research means the usage of other searchers’ findings in the research. These can be studying the existing articles, books etc. (Clarke 2005.)

To conduct research, one needs to use different sources of information. There are two types of all sources: documentary and non-documentary sources. The non-documentary sources are those that don’t exist in the documented form. However, they can provide important knowledge about some event or concepts. They include conversations between colleagues or industry professionals. (Varsh- ney 2011.)

The documentary sources exist in the form of documents, generally published or recorded. Three types of documentary sources can be used in research: primary, secondary and tertiary. The primary documentary sources are the records with the original research and developmental findings. This kind of sources is often not properly organized. The primary sources in the market research are research reports, periodicals, patents statistics. (Varshney 2011.)

The secondary documentary sources consist or refer to the primary documentary sources. It is presented by organized or modified information from primary sources for some purpose of research. The secondary sources do not provide any additional information, comparing to the primary sources. They include textbooks, monographs, and bibliographies. Tertiary documented sources do not contain knowledge in themselves but help with the search of the needed primary and secondary sources. The tertiary sources include guides to works, yearbooks, and bibliographies to bibliographies. (Varshney 2011.)

As a rule, primary sources provide more reliable information than secondary. Therefore, the searcher should prefer primary sources to secondary and tertiary when it is possible. For this reason, the searcher should always try to find the primary sources in the research references. (Varsh- ney 2011.) However, most research writings use all types of research sources (Clarke 2005). There- fore, in this research, the primary sources have to be used when possible.

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2.2 Research paradigms and methods

The research approaches, or research paradigms, can be of three types: quantitative, qualitative, or mixed. The choice of the approach depends on the type searcher expects to work with. If the research questions deal with the numerical data, the searcher shall use the quantitative approach for the research. If the research study the textural data, qualitative research shall be used. Sometimes the researcher needs to work with both numerical and textual data. If this is the case, the mixed approach should be used, which combines both other approaches. (Carrie 2007.)

The type of research approach influences the type of method used in the research. The quantitative research implies using the methods that provide objective numerical measurements and analysis of such data. (USC Libraries 2019.) The methods of quantitative research include descriptive, correlational, causal-comparative and experimental. Descriptive research methods include surveys, obser- vations, polls, case studies. Correlational research methods used when a searcher investigates if there is any dependence between two or more variable. The causal-comparative research method is used when the searcher wants to investigate if there is the dependence of one variable to another. For example, how the change of price may influence the demand. Experimental research method means creating controlled and random experiments to get a definitive result. (CFR 2019.)

The qualitative approach implies the discovery of a phenomenon from the person’s viewpoint. The qualitative approach methods that are applicable in the market research are case studies, phenomenological study and content analysis studies. (Carrie 2007.) Case studies are the in-depth explora- tion of something with all its attributes (Creswell 2003, 15). Phenomenological studies involve the understanding of something through someone’s point of view (Leedy & Ormrod 2001, 157). Content analysis study is exploring communications (books, periodicals etc.) for finding patterns and biases (Carrie 2007).

The mixed approach is relatively new and it is a combination of quantitative and qualitative methods. It allows building more complex theories build on more objective numerical data and less objective personal viewpoints and experiences. (Carrie 2007.)

All three types of approaches shall be used in the research. Understanding the use of each approach would help the searcher to identify the best possible approach for obtaining the needed information and its interpretation for the research. In the context of the current research, the quantitative approach has to be used when studying the market at the whole and collecting meaningful statistical data, making market analysis and reasoning which involves deduction; while qualitative research has to be used while dealing with the market customers preferences, behaviours analysis and other personal viewpoints, making analysis and reasoning which involves induction. The mixed approach will be benefiting for using the benefits of both previous methods and provide complex analysis for building the findings into the theories.

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2.3 PEST analysis theory

The acronym PEST stands for political, economic, social and technological environments. It is one of the most popular tools for studying the macroenvironment of the market (Sammut-Bonnici & Galea 2015a). There is another variation of the theory called PESTEL which also includes the ecological and legislative environment. However, this extended version of the theory is not practical for this research according to the company’s needs.

The political environment influences businesses in many ways. Different political systems, insti- tution and policy have a huge impact on the companies and determine their operations and perspec- tives. There are many types of political systems. The extreme ones are authoritarian and democratic. There are many other types between those two. In authoritarian systems conflicts are re- solved by force, while in democratic by discussions and compromises. (Worthington & Britton 2009.)

All political factors can be divided into 3 groups: supranational, national and sub-national levels. With the continuing globalization, supranational factors are presented by the existing political and economic blocks. (Sammut-Bonnici & Galea 2015a.) The examples of the influence of politics on business are the instability due to the change of the government, new initiatives, imposing of import tariffs, political tensions between the countries resulting in restricting policies of trade (Cadle, Paul & Turner 2010, 3). It is also important to understand the level of bureaucracy and corruption in the country, tax policies, competition regulation, and freedom of journalism in the country (Jurevicius 2013).

The economic environment is one of the most important environments for companies. In market-based economies, the market is driven by many variables. And even in such economies, the role of government is usually significant. (Worthington & Britton 2009.) Important market indicators are the Gross Domestic Product per capita; economic growth, inflation, interests, and unemployment rates; Purchase Power Parity; and stock market growth rate. Also, labour trends, fiscal and mone- tary policies, and credit availability are important (Jurevicius 2013).

The social environment deals with customers and prospects of the company (Cadle et al. 2010, 4). To understand this group of people, companies need to research demographics, study their behaviours, habits, attitudes, preferences, and values. (Jurevicius 2013.) Social trends influence demand in the market. Their consideration allows for better positioning of a product and improves its competitiveness in the market. The social environment becomes even more important with the shift from a product orientation to customer orientation. Companies also pay more attention to lifestyle to segment markets, contrary to orientation only to demographics. (Sammut-Bonnici & Galea 2015a.)

The technological environment plays a key role in companies that operate in modern industries. But they are also bringing changes to the older industries. Innovations in mechanics, electronics, pricing, product design, and software gradually change how businesses work. (Sammut-Bonnici &

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Galea 2015a.) New communication channels influence how companies manage their relationships with customers and prospects. Technological environment factors are also the level of the infrastructure in the country, spending on research and development, availability of Internet and the rate of its market penetration, and market incentives for new technologies introduction (Jurevicius 2013).

The PEST analysis shall be done in several steps. The first is identification in the company’s environment of significant political, economic, social, and technological factors. The second stage is an analysis of how important each factor is for the firm. The third is deciding if each factor provides an opportunity or threat for the company. The fourth is deciding on what factors are more important for the company and what factors are less important in the short- and long-term period. The fifth step, if the development execution is needed, is creating the plan for strategic action that mitigates threats and takes advantages of existing opportunities in the market. All the factors should be analyzed regarding the company’s actual capabilities and available resources. (Sammut-Bonnici & Galea 2015a.)

2.4 Porter’s Five Forces model theory

Porter’s Five Forces model was created by Michael E. Porter to use it as a tool for analyzing industries and their structures in specific. The model is designed to analyze the external factors in the industries that are significant for an organization’s success. The findings of the analyses will help to create a strategic plan to achieve the organization’s mission. (Recklies 2001.)

The threat of New Entrants

Bargaining Power of Competitive Rivalry Bargaining Power of Suppliers Within the Industry Customers

The Threat of Substi- tutes

FIGURE 1. Porter’s Five Forces Model (Porter 2008)

As shown in Figure 1, Porter’s Five Forces consist of five factors: the bargaining power of suppliers, the bargaining power of customers, the threat of new entrants, the threat of substitutes, and competitive rivalry between existing players (Porter 2008).

The bargaining power of suppliers means the influence over the input source holders in the industry. There are several reasons why bargaining power can be high: the pool of suppliers can be

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very limited in the market, there can be no substitutional product in the market, clients of suppliers can be fragmented and therefore have little impact on the suppliers, the switching costs can be too significant, the suppliers can try to perform vertical integration to increase profitability and reach the economies of scale. If the position of suppliers is too powerful, then the firm can expect problems with purchase prices and supply availability, which is a strategical disadvantage for businesses. (Recklies 2001.)

The bargaining power of buyers means the extend how much influence buyers have over the industry. The bargaining power of the buyers can be caused by many reasons, some of which are a small number of buyers and a high volume of the purchases they make, the products in the industry are not differentiated and easily replaceable, low switching costs, the buyers can create a backward integration, and if the buyers are price-sensitive. (Porter 2008.) The bargaining power is high if the suppliers have high fixed costs, or if products are not of high importance for the buyers, or if buyers are aware of the real production costs of the suppliers. (Recklies 2001.)

The threat of new entrants means the likability of the appearance of new players in the market. Every new player would want to conquer and secure its market share, influencing prices, costs, and required financial resources. The threat of new entrants determines the potential profitability in the industry. Low entrance barriers make companies to reduce the prices or harder invest in the businesses. (Porter 2008.) Entrance barriers are also created by customer’s brand loyalty, intellectual property, resource scarcity, not fair access to the resources due to the government policies and legislation. (Recklies 2001.)

The threat of substitutes means the possibility of the industry product being replaced by a product from other industry. The threat of substitution is also affected by brand loyalty, customer rela- tions, and existing trends (Recklies 2001). The risk is even higher if the substitution gives more value for a better price, or if the switching costs are not high for buyers. (Porter 2008.)

The last force, the competitive rivalry within the industry, is the intensity of competition. High rivalry puts pressure on the level of prices in the industry and decreases the overall profitability. The competitive rivalry would be significant if there are similar firms in the industry; organizations may use the same strategies for achieving their goals and missions; low growth rates in the industry, which results in the only possible firm’s growth through the increasing competition; and high exit barriers for the businesses to quit the industry. (Recklies 2001.) Overall, the model helps to evade the dangerous rivalry and to make good positioning in the industry with the best available conditions. (Porter 2008.)

2.5 SWOT analysis theory

The abbreviation SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, which are identified and analyzed regarding the firm’s environment. It consists of the analysis of the internal and external environments. This tool helps to create new strategies for companies. (Juneja 2019).

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Strengths Weaknesses

Opportunities Threats

FIGURE 2. SWOT analysis matrix (Osita, Onyebuchi & Justina 2014.)

The internal environment analysis consists of an analysis of strengths and weaknesses. It is cri- tical for the firm because it defines the competitive advantage. It starts with the definition of the available resources. There are several types of them: financial, managerial, infrastructural, suppliers, manufacturing, distribution, marketing, brand equity and innovations. Financial resources mean access to financial capital. Their availability improves chances for a successful operation in the long term. Managerial resources mean available competencies in the firm, specifically planning, organi- sing, and leading. Infrastructural resources are the channels of distribution inside the company, with the partners and clients. The next type of resources is suppliers because they play a significant role in many companies. Manufacturing resources deal with available production facilities. Distribution channels also can be favourable or not-favourable for the company’s competitiveness. Marketing resources means the available knowledge in the product promotion, life cycle and design, sales practices etc. Brand equity means the reputation of the company. Innovational resources are the culture that endorses innovations, patents, copyrights etc. (Sammut-Bonnici & Galea 2015b.)

Strengths are the internal factors that allow companies to reach their goals and give competitive advantages. On contrast, weaknesses are the internal factors that prevent companies from reaching their goals and deprive the companies of competitive advantages. When conducting analysis, it’s important to list only the factors that have a gradual impact on the companies position. It is also preferable if the analysis is performed concerning the competitors in the market to highlight the differences, competitive advantages and disadvantages. Therefore, the analysis of competitors would be needed. (Osita et al. 2014.)

The external environment analysis consists of opportunities and threats. The external environment is out of control of the firm, but its understanding is crucial for successful future implications and strategy creation. (Sammut-Bonnici & Galea 2015b.)

Opportunities are the external factors that are favourable for creating a competitive advantage. Some environments are more beneficial and provide more opportunities for organizations, others can provide little to few opportunities. Therefore, a proper external analysis should determine the strategic decisions of the organizations. Threats are the possible external obstacles for the firm to

11 (49) gain a competitive advantage (Sammut-Bonnici & Galea 2015b). Threats can also show the vulnera- bility of a company when they derive from internal weaknesses (Juneja 2019).

The industry environment includes the factors that directly influence the companies income and require strategic decisions. For external part of the SWOT analysis, findings of the Porter’s Five Forces model can be used with its analyses of rivalry among the competitors, threats of new entrants, threats of substitute products, bargaining power of suppliers, and bargaining power of buyers. Grea- ter control of a firm over the industry, greater are the chances for a better position of the company in the market. (Osita et al. 2014.)

Even though SWOT analysis is a good tool for creating a strategy for a firm, it’s very vulnerable to the subjectivity which arises from the wide scope of research, researchers biases, and viewpoints. Therefore, it should be used in the decision-making with precaution. The SWOT analysis helps companies to determine their strengths, revise their weaknesses, improve the usage of opportunities, and deal with the risks that come from threats. (Osita et al. 2014.)

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3 CONDUCTING MARKET RESEARCH FOR LITNET

The research will contain the company overview, conducting of the PEST analysis, competitors overview, application of the Porter’s Five Forces model, and SWOT analysis using the presented theoretical frameworks. This logical order will help the research to move from the initial wide market research to more specific industry research, and it will end with the internal analysis and some deriva- tions.

3.1 Litnet overview

The current work is done for the company Litnet – a literary platform of eBooks. As of August 2019, the Litnet website has 24,72 million monthly visits (SimilarWeb 2019a). The average visit duration is about 29 minutes, which is above the industry average (SimilarWeb 2019a). There is also a Litnet application for Android smartphones. (Litnet 2019.)

The platform has many social features which differentiate it from traditional eBook stores. Readers can follow their favourite authors, read and comment on their blogs and leave comments to the books. There are ranking and rating systems on the website for the books. (Litnet 2019.)

Above 95% of all books on Litnet are free. This attracts many readers to the platform and helps to solve the problem of expensive customer retention that eBook marketplaces usually have. The stories are published gradually, chapter by chapter up until they are complete. Free books also attract readers to authors who have paid books. This creates a very low entrance barrier for aspiring authors. Authors who met several criteria can start selling their stories on Litnet. (Litnet 2019.)

The paid stories can be of two types – finished and ongoing. A finished eBook sale is no different from the one on other platforms. An ongoing paid eBook is one that is not complete yet, is being written right now and new chapters are published as soon as they are written. Readers only pay once to get access to all written chapters and the future chapters up until it will be finished. After the story is completed, the reader will have access to the finished book. (Litnet 2019.)

The sale of an ongoing eBook is a new distribution model that was created as a solution for several problems. First of all, it helps to deal with digital piracy. There is no sense to copy and illegally reproduce not finished literary work. This means that for the period of the eBook is being written and published chapter by chapter the sales are protected. And the first several months of sales are crucial. Making sales prone to digital piracy provides much better sales results. (Litnet 2019.)

Secondly, authors can escape traditional sales cycles in the book industry. They can start making money before the work is finished. And after the book is complete, it can be even further edited and sold as a complete. Thirdly, the experience of reading a book chapter by chapter is different from reading a finished book. It makes readers more engaged in the story as they know that the author is aware of their opinions in comments. This makes authors much closer to their readers as opposed

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to the traditional book market where communication channels with the author are very limited. (Lit- net 2019.)

3.2 Conducting PEST analysis for Litnet

In this chapter, factors in the company’s environments will be identified regarding their relatedness and significance to the case company. Political, economic, social, and technological environments will be studied using the PEST analysis framework.

3.2.1 Political and Economic environments

The first external environment that will be analyzed is political. The USA is the most economically and politically powerful country in the world. Its political system is based on the division of power and remained very much unchanged since its origin. (BBC 2019.) The USA is a federal country that consists of 50 states. Each state can have its law system, but it has to abide by the federal law. The country is a representative democracy. Lobbyists, media and interest groups have high influence over the country’s politics. (Lumen 2019.)

The current president of the USA Donald Trump engages in international trade agreement renegoti- ation has created some political and economic tensions with other countries. The government tries to change existing economic deals with other countries and imposing import tariffs to stimulate domestic production. (Trevisani 2018.) Internal political affairs are characterized by increased political competition between two main parties in the face of the upcoming elections in 2020. There are also some discussions of the possibility of the political impeachment of the current US president which brings some uncertainty to the political environment (Phillips 2019).

Overall, the political environment in the USA is stable, being backed by more than two hundred years of history of democracy in the country. Therefore, the risks of political factors that can be harmful to the case company look to be unlikely.

Now the US economic environment for the case company will be studied. Being the largest economy in the world makes the USA an attractive market. The economic expansion of the US economy continues for the 11th year in a row (Mutikani 2019). The GDP per capita in the third quartal of 2019 equals $57 972 (Fred 2019). It gives the USA the 11th place in the GDP per capita world rank (WPR 2019a). In 2018, the USA real GDP increased by 2.8%. It is projected to become 2.1% in 2019 and 1.7% in 2020. (IMF 2019.) Thus, there is a trend in the real GDP growth rate decrease.

Inflation rate in 2018 in the USA was 1,8%. It is projected to grow to 2.3% and 2.4% in 2019 and 2020 respectively (IMF 2019). One of the main reasons for this is the imposing tariffs on imported consumer goods from China (Mutikani 2019). The unemployment rate in 2018 was 3.7%. In 2019, it is projected to become 3.5%, reaching one of the lowest rates in the country’s history. (IMF 2019.) According to Bloomberg, the probability of a recession in the US economy in 2020 is 27%, which is not very high. (Sammut-Bonnici & Galea 2015a.)

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As our case company operates in the eBook market, it would be reasonable to look first into the global market results. The global eBook market revenue in 2018 was about $13,2 billion (Statista 2019a). The annual market growth in 2019 is projected to be 3,7%, which can result in $13,7 billion. The market is predicted to continue its steady growth reaching the point of $15,2 billion by 2023 (Statista 2019a). These expectations show the generally favourable conditions for the industry.

The US eBook market is the largest in the world. Its revenue equalled $5,4 billion in 2018, which comprised about 41% of the whole world eBook market revenue. It is expected to reach $5,5 billion in 2019, showing the growth of 1,5%, which is below the world average. This can be explained by the fact that the market is developed and the growth potential is limited. By 2023 the US eBook market revenue is expected to grow up to $5,8 billion. (Statista 2019b.)

The US is a multilingual country, even though the majority of the population uses English. 231 million people speak English as their primary language spoken at home in the US while 37,5 million people speak Spanish and about 3 million people speak Chinese. (Burton 2019.) Therefore, it is reasonable to study how big is the Spanish-language eBook market in the US. According to the report made by Libranda (2019, 13), the global Spanish-language eBook market equalled to €75 million. The share of the Spanish-language eBook sales in the US is 9,6%, which equals to €6,9 million. This number is so small that it for this research only the English-language eBook sales in the US should be taken into account.

There is a global trend of starting imposing taxes on digital products (Cole 2017). Hence, it is important to check if the eBooks are a subject of taxation in the USA. The USA doesn't have a VAT. Instead, there are over 11 000 tax jurisdictions in the USA. Their tax rates differ significantly. Some of the jurisdictions don't impose any sales taxes (e.g., Portland, Alaska), others can have it as high as 10.25% (e.g., California). (Walczak 2019.) As of 2018, many states didn't indicate if eBooks are a subject to taxation. Only some of the state's legislations exempt eBooks from the taxation (California, Georgia, Iowa, New York, and Rhode Island). More states require the sales tax be added to the prices of the eBooks (Connecticut, Indiana, Kentucky, Louisiana, Maine, Minnesota, Missis- sippi, Nebraska, New Jersey, North Carolina, Ohio, Pennsylvania, South Dakota, Texas, Utah, Wash- ington, Wisconsin, and Wyoming). (Cole 2017.)

The prices of the eBooks have been decreasing for the last years, which has resulted in a decrease of sales in value. However, more publishers start to sell their eBooks after they realized their profitability potential. Most of the large publishers print their books now in both printed and electronic form. (Mordor Intelligence 2019.)

The eBooks have a significant market share in the genre fiction. As of 2017, eBooks’ share comprised 70% of the genre fiction. According to Mark Coker, the founder of Smashwords, the reason for this is because genre fiction has a straight narrative. It's also easier to read it from electronic devices, which is more convenient for many readers. (Rowe 2018a.)

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In 2017, there were sold 411 million copies of eBooks. 216 millions of them are traditionally published, while 195 million copies are self-published (The Atlas 2019). There is substantial growth in the number of self-published books in the market, meaning that many authors don’t use the services of publishers and sell their books directly to the readers or through literary platforms. The growth rate of self-published books in the US in 2017 surpassed 28%. In 2012, there were overall 394 132 self-published books given ISBN (International Standard Book Number) unique code. In 2018, the number exceeded 1 million, showing a steady increase in the number of self-published titles. (Bowker 2017.) Many of the self-published eBook titles don't have assigned ISBN codes because it is not obligatory for them. As a result, it's hard to get a real understanding of how much eBooks were published by authors independently (UKSG 2018).

The self-publishing means that authors independently do all the work the publishers used to do. This includes developmental editing, copyediting, and proofreading, eBook formatting, uploading to the platforms, signing agreements, registering copyrights, creating a cover design, protecting books from digital piracy, and marketing. There are also financial aspects, that include taxation that has to be controlled by an author. As a result of the growing trend in self-publishing, there appeared so- called self-publishing services that offer authors to help them with doing all the preparations for the books publishing. They often offer their services in packages, giving options for authors to choose what exactly they need help with. In 2016, only 6,9% of all self-published titles were published individually without any assistance from the self-publishing services. (UKSG 2018.)

But even though the self-publishing is growing popular as a phenomenon, it's not equally presented in all literature genres of eBooks. Romance, fantasy, and sci-fi are amongst the most popular genres in self-publishing. Even half of all romance best-sellers on Amazon are self-published. They are fol- lowed by mystery, thriller, and crime genres. As can be expected, literary fiction is much less popular for the self-publishing authors than the genre fiction. (IAPWE 2017.) The eBook market share is not the same in self-publishing and traditional publishing. In 2015 the eBook market share of traditional publishers was 24%, which was a 3% decline from 2014. There was also a trend that self- published books slowly grow their market share, while 5 biggest publishers lose their dominance in the market of eBooks in the US. As a result, the market becomes more fragmented. (Nielsen 2016.)

Also, to publish books independently, authors can have their books published by a traditional publisher. In this case, those authors use so-called hybrid published. Usually, hybrid publishing is used by more experienced authors who have a history of work with publishers but want to sell some of their stories independently to make more money from them. On top of that, sometimes self-published authors agree to make a new book for a publisher, thus becoming a hybrid author. (IAPWE 2017.)

Marketing is key for self-published authors. Their main marketing strategies can include building a strong online presence through the author's website and social networks, creating a newsletter and

16 (49) signing in readers to it in exchange for some gift as a free copy of a book. Another working marketing strategy for self-published authors is making the first book of the series free for readers. This way it will help to attract more readers to the author. The last methods are possible only in the eBook market, as there are no variable costs when regarding the digital copies of a book. (Baver- stock 2017.)

The most profitable genre in the US overall in 2016 was Romance. It generated $1,44 billion. The audience of this genre was about 30 million people in the US. The second most popular genre, Crime and Mystery, created the flow of $728,2 million. The next popular genre is Inspirational and Religious. It generated $720 million in sales, which tells a lot about market preferences. Fantasy and Science fiction are the fourth most popular genre with $590 million. The genre is generally characterized by a steady audience that prefers reading books of this genre. (Statista 2015.)

There are also different models of eBook sales. There are many start-ups in the industry, and many of them try to reinvent the eBooks distribution model or change the readers’ experience. Ac- cording to AngelList, the US-based web platform for investors and start-up owner, there are 2 261 start-ups under the category “publishing” (Rowe 2018a). This can be so due to the low market entry barrier to the industry.

The subscription services in the market are presented by companies that have a model of selling access to the eBooks to readers monthly for unlimited access to the eBooks that the service has. The emergence of eBooks allowed the appearance of this model because there are no variable costs for allowing readers to read as much as they want. The first subscription service for eBooks was launched in 2001, and since when there are lots of different services. Many of them specialize in one literature category. Some services offer only professional literature, or all genres of literature, or literature only appealing to the women. The platforms make agreements with publishers or directly with authors to add their books to their platforms. As a rule, services create some kind of a metric to keep track of how much each book is read by the users. The compensation is paid later to the copyright holders according to the metric results. (Polanka 2013.)

The most noticeable market players in the subscription services in the US are Kindle Unlimited, Scribd, Bookmate, and Kobo Plus. The monthly price for the subscription is around $10. It's hard for these services to negotiate with publishers because many publishers think that making their books available for subscription services will devalue the product. (Kozlowski 2019a.) The compensation received from one book read in the subscription service usually will be much smaller than from one paperback or even eBook sold. This is so because the user’s monthly payment has to be divided into small parts and distributed to all the copyright holders whose work he or she read. For this reason, some of the subscription services heavily rely on the self-publishing authors, as they are more flexible and can tolerate small profits from each copy while expecting to earn from the big number of copies read (Kozlowski 2019a).

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There is also an opinion that the eBooks subscription is what is a library for paper books, so it can’t be viewed as a substitution for traditional eBook sales (Polanka 2013). The limited market of eBooks doesn't help the subscription services. Even though the eBooks subscription services may look like they correspond to the current trend of popularity of subscription services in media (Spotify, Apple Music, Deezer in music; Netflix, HBO, Amazon Prime in the video content), but the eBooks are a very different kind of content. Users can't read so many books as to how many shows and songs they watch and listen monthly. (Illian 2015.)

The subscription services can also feel the pressure from the other forms of digital storytelling services. This kind of service of commercialized digital storytelling is presented in the USA by Radish, Wattpad, Dreame and others. Some of them will be scrutinized in the Competitor's Overview part. These companies offer a different format of eBook distribution that traditional eBook marketplaces. They use the pay-per-chapter model to make money from eBooks. The readers don't buy the whole book as a product, but they rather buy each chapter separately as they read the book. Those are usually small payments, but as reader progress with a story, the sum of money spent can reach tens of dollars. This model firstly appeared in the Asian markets, especially China and Japan, and since then become popular there. (Biersdorfer 2017.)

This pay-per-chapter model also corresponds to the global trends of serialization in literature. According to Yael Goldstein Love, the editorial director of Plympton Publishing, a serialized novel is a novel that is given to readers in parts for some time. The main advantage that the serialization gives to readers is that it connects readers to the audience and helps to build an audience. Serialized novel more easily engages readers because as they are distributed in small instalments, readers don't hesitate so much to invest their time into it. So, they are easier to start reading than a traditional full-sized novel. Serialized novels also hope with the problem of "what-to-read" next for readers, because they offer overall longer time of the novel consumption. The period between the instalments delivering is crucial because too long period can discourage readers from continuing reading because they can just forget about what had been going previously in the story. (Bunting 2012.) Serialized eBooks also rely heavily on so-called a cliffhangers – the endings of the instalments in the middle of the sign for the plot scenes (Rowe 2018b).

There is another form of digital storytelling which is a part of the eBooks market. This appeared only recently and is especially popular among the young audience. Those are the services that offer to read stories in the form of chats, which is called chat fiction. In the USA, the most noticeable services are Radish (chat stories section in addition to the fiction stories was launched in 2018), ReadIt, Yarn, Hooked, Lure, and Ozy. Those services are offered through their applications on smartphones. The applications allow readers to read the stories in the form of chats between the characters. This form of digital storytelling is believed to be appealing to the younger audiences as they are heavy users of the chatting apps and they are less likely to start reading full-sized novels. For example, 69% of Hooked users are under 25 years old. However, it looks like the chat fiction services are not on the rise right now. There are little new about them comparing to 2017 when market analysts

18 (49) predicted success to this form of digital storytelling. (Lehner 2017.) According to SimilarWeb (2019b), the popularity of one of these apps Hooked is going down.

The audiobook market is also close to the eBook market. According to Audio Publisher Associa- tion, 50% of Americans over 12 years old have listened to an audiobook for the last year as of 2019. The year before this number was 44%. Interestingly, 74% of all audiobook's consumers listen to the audiobooks while driving a car. So, audiobooks listening not entirely a substitute for eBooks reading. However, the second most popular place for listening audiobooks is home with 68% of users. The average number of audiobooks listened per year was 6.8 in 2018. The most popular genres for audiobooks are Mystery, Thriller, Suspense, History, Biography, and Humor. (APA 2019) This differs audiobooks from eBooks where the most popular genre is Romance.

The biggest audiobook retailer in the USA is also Amazon with its service Audible (in addition to the eBook store Kindle). However, this service offers the audiobooks on a subscription basis. But readers have only a limited number of books they can listen per month and it is around 3 audiobooks. The audiobooks are not decreasing the print sales books yet. (Poole 2019.). But they cause pressure to the eBook industry. For example, the share in the total revenue of audiobooks for Hachette, one of the biggest publishers, accounted for 3,4% in the first half of 2019. It was 2,5% in the same time in 2018. eBooks used to generate 8,4% of income in 2018. However, as of 2019, they accounted for 8,2% of total revenue. (Kozlowski 2019b.)

One of the other important aspects of the eBook market is digital piracy. It was calculated by the publisher Macmillan that the US publisher loses about $300 million annually because of the piracy (Nielsen & Digimarc 2017). The digital piracy with the eBooks is relatively easy to do because digital information is generally easy to reproduce. Moreover, the Internet made it easy to share illegally copied content.

Some of the marketplaces as Amazon try to introduce digital protection for the eBooks they sell. They add the DRM (Digital Rights Management) software to their eBook files. The books with this protection can be read-only on Amazon devices and in Amazon applications. However, there are methods to disable DRM protection and get free access to the data. The illegally copied content can be either shared for free on the Internet or even sold without any payments made to the copyright holders. It is merely impossible to make the pirate websites to stop illegally reproduce eBooks because they can be in a very distant jurisdiction and litigation can be ineffective. However, publishers and authors make requests to the search engines to exclude the pirate website items from the public search results. (Rau 2019.)

The study of Nielsen and Digimarc (2017) shows that only 41% of all eBook pirates are between 18 and 29 years old, but 47% of all eBook pirates aged between 30 and 44. The main factor for jus- tifying downloading of the illegally copied eBooks is the convenience of the illegal download and the eBook cost. Only 17% of the people who download eBooks illegally believe that they don't have to pay for this kind of content. 66% of the illegal downloaders are men and 36% are women. 40% of

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those people are college graduates, 32% are post-college graduates. What is also surprising is that the most pirating segment are the households that earn between $60 000 and $99 000 annually, and 29% earn more than $100 000 annually. This shows that piracy is not connected to the education or income level, but rather to the user's habits and preferences. (Nielsen & Digimarc 2017.)

Regarding the methods how people download the pirated eBooks, 31% of them download the illegally copied eBooks using torrent (the decentralized file distribution system) websites, also 31% of them use publicly available cyberlocker websites, 30% of them receive an illegal copy from the people they know via email, messenger, or a flash drive. 42% of those people are also buying eBooks from online retailers. 33% of the people who regularly download the illegal copies of eBooks for free would purchase an eBook in the legal store, 24% would look for the eBook somewhere else to download it for free, and 19% would try to buy a new print or used copy. Only 8% of the readers would not acquire the book at all. (Nielsen & Digimarc 2017.)

3.2.2 Social and Technological environments

Regarding the social environment, the population of the United States of America, as estimated by the United Nations, is 329,06 million people. This makes the USA the third most populated country in the world. The most populated states are California (39,5 million people), and Taxes (28,7 million). The largest city is New York (8,4 million people). The population growth of the USA close to 1% per year as of 2019. (WPR 2019b.)

The population of the USA can be characterized as multicultural, as there leave lots of people of different origin. 14% of the current population was not born in the United States, which shows how big immigration is. Majority of immigrants come from Latin America countries and Asian countries. The average age of the population is steadily increasing, and the share of the working-age population is projected to decrease from 63% in 2019 to 52% in 2060. (WPR 2019b.)

The mean salary, as of 2015, was $56 516 per year. New York is the state with the highest GDP per capita ($85 746). The most spoken language. English is used by 79,29% of the population. Spanish is used daily by another 12,85% of the USA population. However, there is no official federal language in the USA. Nevertheless, English is commonly used by the government and for writing documents. (WPR 2019b.)

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Number of eBooks users in the USA, millions 95.00

90.00

85.00

80.00

75.00

70.00 2017 2018 2019 2020 2021 2022 2023

Number of eBooks users in the USA, millions

FIGURE 3. Number of eBooks users in the USA (Statista 2019b)

According to Statista, 80,3 million people used eBooks in the USA in 2018. This number is projected to grow, reaching 82,5 million in 2019 and 89,6 million in 2023 (Statista 2019b.) The data shows a clear positive dynamic.

Penetration rate of the eBooks in the USA 27.0% 26.5% 26.0% 25.5% 25.0% 24.5% 24.0% 23.5% 23.0% 22.5% 22.0% 2017 2018 2019 2020 2021 2022 2023

Penetration rate of the eBooks in the USA

FIGURE 4. The penetration rate of the eBooks in the USA (Statista 2019b)

The penetration rate in 2018 was 24,6%. It is projected to be 25,1% in 2019 and 26,5% in 2023 (Statista 2019b). The growth in the rate shows probably causes the growth in the number of eBooks users as was discussed earlier.

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The average revenue per user in the eBooks market in the USA, $ 70.00

69.00

68.00

67.00

66.00

65.00

64.00

63.00

62.00 2017 2018 2019 2020 2021 2022 2023

The average revenue per user in the eBooks market in the USA, $

FIGURE 5. The average revenue per user in the eBooks market in the USA (Statista 2019b)

The average revenue per user was $67,36 in 2018. It is expected to decrease up to $66,51 in 2019 and up to 64,62 in 2023, which can be explained by the rising competition. (Statista 2019b.) This is not a positive trend. It can be caused by the decrease in the average price of an eBook copy and the increasing competition in the industry.

eBooks users in the US by age 35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0% 18-24 years 25-34 years 35-44 years 45-54 years 55-64 years

eBooks users in the US by age

FIGURE 6. eBooks users in the US by age (Statista 2019b)

Regarding the age of the users, 15,1% of all eBook readers in the USA are between 18 and 24 years old, 31% of them are between 25 and 34, 23,4% of them are between 35 and 44, 18,8% of them are between 45 and 54, and 10,9% of them are between 55 and 64 years old (Statista 2019b). Un- fortunately, this set of date ignores the group of the population who are under 18 years. However, it

22 (49) still shows that the main group is 25-34 years old. Regarding gender, 47,3% of the users are male, while 52.7% are female (Statista 2019b).

Devices used by consumers for eBooks reading in the USA, 2017 70%

60%

50%

40%

30%

20%

10%

0% Tablet eReader Smartphone Laptop PC Other

Devices used by consumers for eBooks reading in the USA, 2017

FIGURE 7. Devices used by consumers for eBooks reading in the USA (Statista 2017a)

As seen in the Figure, the most preferred device for reading eBooks in the USA in 2017 was a tablet with 61% of consumers. The next popular electronic device was a dedicated eBook reader, or eReader, being used by 54% of consumers. 40% of users used smartphones to read eBooks, while 22% used laptops. Finally, 15% used their personal computers, or desktops, to consume eBooks. (Statista 2017a.)

Number of eBooks purchases by individual consumers in the USA, 2017 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 0 books up to 5 books up to 10 books up to 15 books up to 20 books More than 20 books

Number of eBooks purchases by individual consumers in the USA, 2017

FIGURE 8. Number of eBooks purchases by individual consumers in the USA (Statista 2017b)

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The Figure shows how many eBooks copies were purchased by individual users in 2017. Up to 43% of the users didn't buy eBooks at all. That means that they either read-only free copies of the books, or use the illegally copied eBooks. 32% of the consumers purchased up to 5 copies of eBooks, while 10% of them purchased up to 10 copies. 5% and 3% of all users purchased up to 15 and up 10 20 copies of eBooks respectively. More than 20 eBook copies were purchased by 7% of all consumers in 2017. (Statista 2017b.) The data shows that only a relatively small part of all eBook consumers are avid readers. Therefore, companies should try to target their sales to this segment of the market, as relatively small part buys a big number of books. Moreover, customer retention may be a key to profitability.

Reasons that would make consumers buy more eBook copies, 2017 60%

50%

40%

30%

20%

10%

0% Cheaper Larger Cheaper Simpler Different Other Nothing prices selection of eReaders process of payment eBooks prices downloading options

Reasons that would make consumers buy more eBook copies, 2017

FIGURE 9. Reasons that would make consumers buy more eBook copies (Statista 2017c)

To further understand the consumers' behaviour in the market, the Figure can be studied. It shows that the main reason to buy more copies of eBooks, according to users' reports, is cheaper prices for eBooks. Regarding the fact that the consumer prices on eBooks were decreasing the last years as of 2019, this indicator shows that the consumers can be one of the factors that cause the pressure. 22% of users would buy more eBooks if they could access the wider selection of eBooks. That means that the second-largest problem for users is the limited selection. 20% of consumer would purchase more eBooks copies if the eBook readers were cheaper, and also 20% of them would do it more, if the process of downloading were simpler for them. 10% of the buyers are not satisfied with the available purchase methods, which is surprising regarding the fact of eCommerce penetration in the US. Finally, 25% of users couldn't find the reasons that would allow the reasons that stop them from buying more books, meaning that they are just fully satisfied and don't want to buy more. (Statista 2017c.)

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According to Nielsen (2016), the main sources of the eBook discovery by the buyers were online browsing through the site (around 13%), in-person received recommendation from a friend or a rel- ative (10%), online recommendation based on what the person read before (6%), and read online the free sample of the eBook (6%).

It is important to highlight taking about the USA technological environment that the United States of America is one of the leading countries in technological development in the world (Khar- banda 2016). The USA expenditures on R&D are one-third of the global expenditures for R&D. They spend 2,7% of their GDP on R&D, which is not as high comparing to South Korea (4,3%), Israel (4,2%), and Japan (3,4%). The business sector has as high as 71,5% share in the total R&D USA expenditures. (UNESCO 2019.)

The advantage of the technological environment in the USA is that it is a home for many famous research institutions ad California Institute of Technology, Massachusetts Institute of Technology, Stanford University, and Harvard University. Moreover, it is also a home for companies that spend lots of money on R&D. For example, Amazon, Alphabet (Google's maternal company), Microsoft, Intel, Apple, and others (Skillicorn 2019). All the mentioned companies work in the IT industry, which shows how good the position the USA has in this sector.

The Internet penetration in the USA 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% 78.0% 76.0% 74.0% 2017 2018 2019 2020 2021 2022 2023

The Internet penetration in the USA

FIGURE 10. Internet penetration in the USA (Statista 2018a) eBooks, as a created by the advantage in the technology commodity, strongly depend on some factors, as the Internet accessibility and the penetration of the devices that allow reading eBooks. As can be seen in the Figure, the Internet penetration dynamic is positive. In 2018, 84,1% of all population used the Internet. In 2019 this number is 86,5%, and by 2023 it is projected to grow up to 93,7%. (Statista 2018a.)

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Smartphones were used by 77% of the USA population in 2018. Desktop and laptops were owned by 73% of the population. Tablets, the most popular devices for reading eBooks, were used by 53%. This is a good result, showing how much widely electronic devices compatible with eBooks are used by the population. (Hitlin 2018.)

Talking about the eBook readers devices, this market is presented in the USA by the products of Amazon, Kobo, and Barnes & Noble. Amazon Kindle controls 83,6% of the market, Kobo’s share is 13,4%, and the Barnes & Noble Nook’s share is only 2,1%. (Cheng 2018a.)

Retail eCommerce sales in the USA, $ billions 800.0

700.0

600.0

500.0

400.0

300.0

200.0

100.0

0.0 2017 2018 2019 2020 2021 2022 2023

Retail eCommerce sales in the USA, $ billions

FIGURE 11. Retail eCommerce sales in the USA (Statista 2018b)

With the advantage of the Internet and digital payment methods, there is a rise in the Internet- driven commerce or eCommerce. As of 2018, the retail eCommerce sales in the USA were $501 billion. In 2019, it is projected to be $547,7 billion. It is also projected to grow up to $740,4 billions by 2023. (2018b.) The rise of eCommerce means that the eBook market will also benefit from the ex- panding eCommerce infrastructure.

3.2.3 PEST analysis summary

All the above-mentioned findings of Litnet’s external environment in the USA eBook market could be summarized in Figure 12.

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POLITICAL ECONOMICAL • Pollical stability • Key economic indicators are excellent • Low risks • The USA eBook market is the largest in • International trade rivalry the world • Upcoming elections (as of 2019) • The market is projected to grow • Taxation rules vary on the state • eBooks are the domain of the genre fiction literature • Romance is the most popular genre • A large share of self-published books in the market • Different sales models available (pay per copy, pay per chapter, subscription) SOCIAL TECHNOLOGICAL • High market penetration of eBooks is • The exceptional infrastructure of the expected to continue growing market • Main eBook reading devices are tablets, • High Internet penetration eReaders, and smartphones • eCommerce sales are expected to grow • The most likely reason to make a customer buy more is to decrease prices FIGURE 12. Summary of the PEST analysis

3.3 Competitors overview

The main potential competitors of our case company in the USA eBook market are Amazon, Kobo, iBooks, Smashwords, Wattpad, and Radish. All these competitors will be briefly reviewed to create later Porter's Five Forces model and to have a better understanding of the industry.

Amazon is the biggest online merchandiser in the US, creator and manufacturer of the eBook reader devices Kindle, and huge Internet services supplier. The history of Amazon started in 1994 when Jeff Bezos created an online shop for selling printed books. Since 1998 it started also to sell music and video. Not much later, Amazon started to offer customers consumer electronics, video games, software, and other consumer products. As of 2019, the most profitable division of Amazon is not retail, but the Internet services that they provide, such as web hosting and cloud computing. This is the main target for their internal investments now. (Hall 2019.)

Amazon was at the very beginning of the rise of the mass consumer eBook market. Amazon created a Kindle Store, the book department of its website, in 2007. At the same time, they launched the hardware for reading eBooks they sell. It was a device called also Amazon Kindle. (Hall 2018.) Later they offered close integration between the Kindle Store and the Kindle eBook reader, meaning that users can purchase eBooks right on those devices, or send the books there through the Internet.

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This is an example of a successful vertical integration that enabled the company to create its ecosystem in the eBook market.

Since 2007, the Kindle eBook reader had many iterations and continues to be sold. However, the Kindle eBooks readers production reached its highest point in 2011 (23,2 million units shipped). Since then it had been decreasing, reaching 7.8 million units sold in 2015. (Statista 2016.) However, it doesn't mean that Amazon started to lose its position in the eBook market. The decrease in Ama- zon's eBook readers shipments could be explained by non-existing technological changes in the device and change of readers' preferences. As was discussed in chapter 3.2.2. of this work, smartphones were used by 73% of the USA population, and tablets by 53%. Amazon has a Kindle application for smartphones and tablets (Android and iOS operating systems).

Regarding the Kindle application for reading eBooks on smartphones, it works as a library that is synchronized with the list of eBooks purchases that was made on Amazon. The books can be read right in the app. However, it is not possible to buy books right from the smartphone application. Most probably, the reason for this is because Amazon would have to pay the commission of 30% for every purchase made in the application to the owner of the operating system.

Amazon purchased in 2013 the popular service for book cataloguing and reviewing Goodreads, which also includes some social features (Olanoff 2013). This gave Amazon control over the world’s largest website for book recommendations that have 90 million users, 2,6 billion books, and 90 million reviews (Goodreads 2019). The book pages of Goodreads have the button which leads to the Amazon copy purchase page (but there is also other purchase available in the dropdown menu), which further integrates the store with this booking service and continues enlarging Amazon's successful eBook ecosystem.

In 2005, Amazon has acquired a print-on-demand company BookSurge that allowed customers and self-publishing authors to sell print-on-demand books on Amazon (Metz 2008). Print-on-demand sales method means that the book copy is not previously printed and stored in a warehouse, but it is sent to print as soon as a buyer orders a book and it will be delivered to the customer. This allowed independent authors to offer physical copies of their books to customers and required no investments of printing the books before they are sold. The disadvantage of this method is higher prices because the economy of scale is not applicable in this case. Print-on-dement, paperbacks, hardcovers, and eBook copies of a book are usually all available on the books page making Amazon a universal literary marketplace.

Amazon has sophisticated algorithms for collecting and analyzing Big Data, immersive volumes of user's data, their behaviour, preferences, etc. (Rijmenam 2019). This helps Amazon to customize the appearance of their marketplace following the needs of every customer. Kindle may try to pre- dict what book the customer is likely to be willing to buy or would be interested in.

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Market share of all eBooks sold copies by each retailer, 2015 Kobo US Google Play Books 3% 2% Other B&N Nook 2% 8%

Apple iBooks 11%

Amazon Kindle 74%

Amazon Kindle Apple iBooks B&N Nook Kobo US Google Play Books Other

FIGURE 13. Market share of all eBooks copies sold by each retailer (Kozlowski 2015)

As can be seen in Figure, Amazon was the largest eBook retailer in the USA market with an impres- sive 74% market share. 84% of all purchases of eBooks of independent authors were through Ama- zon. That makes 80% of all revenue of indie authors generated using Amazon a sales platform. (Ko- zlowski 2015.) Moreover, there is a definitive trend that eBooks are getting more popular specifically for fiction, and independent authors also influence this (Trachtenberg 2019). Amazon’s service Kin- dle Direct Publishing for independent authors pays them 35% royalty if the price is between $0,01 and $2,99, or greater than $9,99. In all other cases, the royalty rate is 70%. This policy is likely to demotivate authors from setting a too low price to win the competition. Amazon also has a program Kindle Select, which offers authors some promotional advantages in exchange for temporary exclu- sivity of a book on Kindle. (Corson-Knowles 2019.)

Amazon also has its subscription service for selling eBooks. It is called Kindle Unlimited and was launched in 2014. It offered unlimited access to the selection of books participating in Kindle Unlim- ited for the monthly payment of $9.99. It gives users access to over 1 million titles (Amazon 2019). Amazon pays the rightsholders according to how many pages were read by readers. The average amount of payments is usually from $0,004 to $0,005 per page. (Trachtenberg 2019.) 77% of subscribers of Kindle Unlimited have reported that they also buy eBooks even at the same time as they have this subscription. So, this subscription service doesn't eliminate users from traditional eBook sales. 35% of readers with the Kindle Unlimited subscription name Romance their primary genre of interest, which is 10% higher than the number of readers who prefer Romance in the market in general. (Kizer 2017.)

Amazon has also a dedicated service for audiobooks called Audible, which also works using the subscription model, providing users with a limited number of audiobooks available to listen per month.

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This division of Amazon is likely to grow in revenue regarding the positive conjuncture in the audiobook market. (Maher 2018.)

Barnes & Noble was founded in 1971 in New York. It is the biggest bookseller which also operates in the markets of eBook readers, digital media, and products for the education industry. (Barnes & Noble 2019.) As showed in Figure 13, it had 8% of the eBook market in 2015 is the third largest eBook retailer in the USA. As of 2018, the company's revenues in retail and eBook reader devices continued to decrease for the sixth year in a row. Its long-term debt was growing and reached $178,8 million in 2018, which made the company cut expenses. (Cheng 2018b.) As a result, in June 2019 it was acquired by the British hedge fund Elliott Advisors. However, their new strategy is mainly built around the regaining of the popularity of their bookstores by differentiating them. (Kahn 2019.)

According to Barbara Kahn (2019), Wharton marketing professor, Barnes & Noble didn’t take seri- ously the potential of the eBook sales and kept relying on the traditional retail book business in their stores. However, Barnes & Noble has a strong position when it goes to the literature events in the USA. It holds thousands of this kind of events yearly throughout the country (Barnes & Noble 2019). Their long history, the bookstore availability and good reputation make them still the strong player in the industry.

The Barnes & Noble version of Amazon’s online store for eBooks Kindle is called Nook. As well as Amazon, the Nook smartphone application doesn’t allow to make purchases from the app. But it allows to browse the store and download free eBooks. Barnes & Noble also has a dedicated service for audiobooks called Nook Audiobooks. It is not a subscription service as Amazon’s audible and each audiobook has to be purchased separately.

Nook eBook store also has the option for independent authors to self-publish their stories. It is called Nook Press. Barnes & Noble pays a little bit different set of royalties comparing to Amazon's Direct Publishing. If the price of an eBook copy is between $0,99 and $2,98, the author will receive 40% of net sales. If the price is between $2,99 and $199,99, the author will receive 65% as a royalty. (Worsham 2019.)

Kobo was founded in 2009 in Canada as an online store for eBooks, audiobooks, magazines and electronic devices for reading. The name of the company is an acronym of the word book. It very fast entered the USA market and started to gain popularity as an eBook store and as an eReader producer. In 2012, Kobo was purchased by the Japanese B2B2C eCommerce platform Rakuten. Kobo incorporated some other eBook stores when it was growing as Sony Reader Store, Shelfie and others. Kobo offers audiobooks for subscription and also sells them individually. (Kozlowski 2018a.) Kobo’s strategy is to be present worldwide and offer their products for different markets offering titles in 77 languages (Kobo 2019a). Kobo has its service of eBook subscription but as of 2019, it is not operating in the USA (Kobo 2019b).

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In 2012, Kobo launched a self-publishing platform for independent authors who want to publish their book on Kobo. It is called Kobo Writing Life. One of the key features that they offer to authors is advanced statistics and detailed user guides for authors. In 2018, Kobo also signed an agreement with Walmart, a huge chain of stores in the USA. According to the agreement, Walmart will sell Kobo eReaders in its stores. Also, Walmart will sell Kobo's audiobooks and eBooks on their website earning a fee from these transactions. (Kozlowski 2018a.) Kobo has a dedicated application for reading eBooks and listening audiobook on smartphones. The purchases of the eBooks and audiobooks are not available on smartphones.

As showed in Figure 13, the market share of the USA eBook market was around 3%. Regarding the authors' royalty payment rate, Kobo pays authors 45% of the list price if the price is lower than $2,99 and pays 70% for all other prices (Kobo 2017). iBooks is an application available only devices made by the tech company Apple that is running iOS or macOS operating systems. It is pre-installed on all its devices, thus available for all users. Accord- ing to Statista (2018c), 45,1% of all smartphone users in the USA used the smartphones from Apple that are called iPhones. iBooks is the only traditional eBook store on the iOS operating system that allows direct from the smartphone because other stores (Kindle, B&N, and Kobo) have to pay Apple the 30% fee for each purchase made in the application (Kozlowski 2018b). The eBooks are published on the platform through the special application on Apple's computers. iBooks also allows independent authors to publish their books in the store. Apple will take a fee of 30% from each sale. As of 2015, the share of iBooks in the eBook market was 11%, as can be seen in Figure 13. The market position of Apple is probably backed by its integration with Apple's iOS system and its ecosystem. This is, from one point of view, Apple has the significant advantage of hav- ing their application pre-installed on iPhones, iPads and their computers. At the same time, their maximum market share is limited to the popularity of their devices. Thus, Apple iBooks is very unlikely to be considered by someone as the main distribution channel, but rather the additional. This makes the dominant position of iBooks in the market unlikely. Moreover, the relatively high market share of iBooks can be explained by its fee policy for in-application purchases. Without it, Amazon’s Kindle, B&N’s Nook, and Rakuten Kobo would be likely to sell their iBooks on iOS devices.

Smashwords position themselves as the largest distributor of eBooks for independent authors. It offers authors and publishers the possibility to publish their books on different platforms like Ama- zon Kindle, B&N Nook, and iBooks through Smashwords. They also can sell books through Smash- words. Smashwords claims that this makes publishing easier and quicker. It gives authors tools for controlling the sales and offers detailed sales statistics from different platforms at one place, which may be convenient for authors who want to publish their eBooks on different platforms. Smash- words has over 400 thousands of books in its catalogue from over 100 thousands of authors. Over 70 thousand books in their catalogue are free. (Smashwords 2019) According to SimilarWeb (2019c), Smashwords had 1,34 million unique visits in October 2019, 33% of which are from the United States.

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Smashwords pays authors 85% of the list price for eBooks that are sold through Smashwords and 85% of the income after deduction of the other platform’s fees if sold somewhere else. (Smash- words 2019). For example, if an eBook is published on Amazon through Smashwords, the author will get 85% of the 70% of the net income which is 59,5% of the list price on Amazon. This is 10,5 percentage points less than the price of the book that the author could earn from independent publishing of own eBook on Amazon. Smashwords can be also beneficial for authors who want to distribute their books from iBooks but don’t have Apple’s computers to publish an eBook independently.

Wattpad is a digital storytelling platform that was created in 2007 in Canada. Wattpad operates throughout the world serving 80 million readers in 50 languages. Wattpad is proud that 90% of its audience is relatively young. (Wattpad 2019.) The share of the USA audience as of October 2019 is 18,78%, which means that there are around 23,5 million visits monthly from the USA. (SimilarWeb 2019d.) These are only the visits to the web version of Wattpad, but they also have iOS and Android app. Their application for iOS devices was downloaded 600 000 times in October 2019 worldwide, and their Android application – 2 million times for the same time worldwide (SensorTower 2019a).

The presented audience data is relevant because Wattpad does not a traditional eBook market par- ticipant. They do not sell digital copies of books like Amazon and other digital marketplaces do. Until 2019, the only income sources for the company were advertisement on the website and in the applications, selling of the premium status in Wattpad that disables adds and gives some customization options, and partnership with other companies. Initially, Wattpad was a social platform where every- one could easily publish their stories, comment other stories, follow authors, write blog posts and communicate in direct messages. The stories are usually published in parts by aspiring authors as they write them. This business model appeared to be successful. (Wattpad 2019.)

Some of the popular stories published on Wattpad became later adapted into books, films, TV shows etc. For example, the story "After" by Anna Todd was initially published on Wattpad in 2013. It soon becomes very popular among the users and the author was offered a publishing contract by one of the biggest USA publishers. Later, the book had its movie adaptation and was translated into 35 languages, taking its place in the New York Times best-seller list (Bosker 2018). As a result, Wattpad became a popular place for literary agents to look for interesting books.

In 2019, Wattpad has launched sales of stories. Some of the stories became paid, so readers had to purchase special internal currency, coins, to pay for the story. The paid stories can be purchased chapter by chapter or sometimes it is possible to buy the whole at once. If a story is purchased whole at once, there can be a discount. There is also an alternative for purchasing the coins for real money. As of 2019, Wattpad allows users to get up to free coins a day (an ordinary price of a paid chapter) in exchange for watching the advertisement videos of their partners in the Wattpad application. This shows that Wattpad has found the way how to try to monetize stories of their authors. Therefore, Wattpad has entered the eBook market. (Wattpad 2019.)

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The main resource of Wattpad is the readers and authors that visit the website daily and spend their time. Trying to monetize the platform with free books by starting selling the stories may bring some risks like making the readers not happy with the change, but it also gives Wattpad authors a chance to make money without leaving the platform. Thus, it may help to make Wattpad more competitive eBook market player.

Wattpad created another application for digital storytelling in 2017. It is called Tap. The application allows users to read and create chat-based stories, kind of the stories that are told through the chat messages of the characters that a user see on the screen. It later obtained new features that allowed to create more interactive stories. For example, at some part of the story, a reader has to choose an option for a character what to do. It will influence how the story goes. The service is monetized with a subscription model. Some of the stories are completely free, but others have only the beginning parts as free. All the next parts are available only for readers with the paid subscription. (Wattpad 2017.)

Radish is another example of the company that sells digital stories which are very close to eBooks. It was launched in 2017 with around 3 million American dollars from seed funding. The founder said that he was inspired by the popularity of the serialized fiction in Asia and believed that the TV shows the concept of episodes and cliffhangers can be used for fiction literature. (Ha 2017.)

The Radish application is only available on smartphones. It is a platform that offers readers serialized fiction stories that are divided into episodes and sometimes even seasons. (Radish 2019.) Ac- cording to the website Sensor Tower, the Radish application was downloaded around 10 thousand times in October 2019 on the iOS devices and around the same number on Android devices (Sen- sorTower 2019b).

The application is monetized by making some of the episodes of the stories paid. Readers have to buy special internal currency, coins, to obtain the paid episodes. Radish experimented with the monetization in the beginning by making paid episodes free if the reader is willing to wait. So, if the reader doesn't want to wait, he can purchase the next episode. However, it looks as if they had changed the monetization model and now all paid episodes can be read after the purchase only.

In January 2019, Radish announced the launch of Radish Originals. Those are the stories available exclusively on Radish and written by experienced TV shows screenwriters. (Threadgill 2019.) This may help Radish to differentiate their product and might offer more customer value. Moreover, as of 2019, Radish has introduced chat fiction stories in their application as Tap from Wattpad.

The competitors’ overview can be summarized in Figure 14.

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AMAZON • 74% market share • Pay per copy and subscription sales model • Own eReader devices • A leader in the USA eCommerce • Application on iOS and Android don’t have the purchase option BARNES & NOBLE • 8% market share • Pay per copy sales model • Own eReader devices • Good brand reputation and large infrastructure of physical stores • Application on iOS and Android don’t have the purchase option KOBO • 3% market share • Pay per copy sales model • Own eReader devices • Wallmart partnership • Application on iOS and Android don’t have the purchase option IBOOKS • 11% market share • Pay per copy sales model • Available only on Apple’s devices • Benefits from Apple’s universal 30% fee policy for in-app purchases SMASHWORDS • Less than 2% market share • Pay per copy sales model • Service fee is around 15% of the sales price • Specialize in independently published eBooks market • Offer many options for eBook distribution WATTPAD • Less than 2% market share • Pay per chapter sales model • The majority of books are free • Social features • Application on iOS and Android have the purchase option • Offers Tap application for chat fiction (subscription model) RADISH • Less than 2% market share • Pay per chapter sales model • Specializes in serialized fiction • Available only as an application for mobile devices • Application on iOS and Android have the purchase option • Offers chat fiction stories in the same app with the same pay per chapter sales model FIGURE 14. Summary of the competitors’ overview

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3.4 Creating Porter’s Five Forces model for the case company

Conducting PEST external environment market research, case company and competitors overviews enable us to proceed to the Porter's Five Force marketing tool utilization. This tool is supposed to help us reflect the obtained knowledge gained through the research to define the industry structure of the eBooks market in the USA as precise as needed for our case company. Traditionally, Porter's Five Forces was used for more traditional industries, therefore it needs more flexible implication in the information technologies driven industries.

It will be started with the bargaining power of suppliers analysis. The parties that represent the suppliers in the eBook market for our case company in the USA are the publishers and the independent authors. The publishers can be presented by from huge international publishing houses with many imprints to tiny publishers who print only local authors. There is no data available regarding the number of publishers in the USA.

The largest publishers in the USA by book copies sold, as of 2016 are Penguin Random House, HarperCollins, Simon & Schuster, Hachette Book Group, and Macmillan (Milliot 2017). Even though these are the traditional publishers who sell printed books as their primary market, they definitively have an impact on the eBook market in the USA. They have a huge influence on the literature industry in the USA in general. They sign contracts with the experienced and aspiring authors, actively participate in the book marketing, shaping the whole industry.

However, publishers are very dependent on the sales distribution channels. As a rule, every publisher has their web bookstore that can be accessed through their websites or some kind of a catalogue with the links to where the books can be purchased. Regarding the fact, that Amazon is the clear market leader in the eBooks retail, the publishers are dependent on this corporation. But the availability of alternatives as Kobo and B&N allows the publisher to negotiate more attractive deals for them. Publishers are already concerned by Amazon's domination in the market. (Bennett 2014.)

Not only big publishing houses are dependent on eBook retailers, but also small presses, or independent presses, depending on the eBook retailers. Those small presses have even less leverage to negotiate the deals because they offer limited numbers of titles published annually and their share on the retailers' income is very limited. (Kudler 2014.)

There are different associations for those who work in the publishing industry. One of them is AAP, Association of American Publisher. This organization helps publishers to protect their rights, raises awareness of the important issues in the market, helps to coordinate publishers’ actions, and pro- motes open and fair market ideals. (AAP 2019.)

Independent authors who self-publish their stories are very numerous, as was discussed earlier, and are very fragmented. They have some alternatives to the mainstream eBook retailers. They can create websites with attached eCommerce. They can also ask their readers for support or use support

35 (49) platforms as Patreon where readers back authors by making regular payments in exchange for some perks as early access to the book updates or additional content. They can also try to work with some other digital storytelling websites as Radish, Dreame, Wattpad, Webnovel, etc. However, as of 2015, only 39% of all authors could back their living solemnly by the sales of their literary works meaning that the many authors don't have good bargaining power. (Rowe 2018c.)

Regarding the bargaining power of buyers, buyers in the eBook market are the consumers who purchase the electronic copies of books. As a rule, this category of buyers is very fragmented because individual consumers have no significant impact and only can influence a little share of the industry which is their own purchase choice. Therefore, their bargaining power is low.

There are no switching costs in this industry. The exception is when the eBook is integrated into the ecosystem. For example, a consumer may have purchased a Kindle eBook reader. Even though it is theoretically possible to consume any eBook from this Amazon's device, many services integrated into the eBook reader are of Amazon. In this case, the customer would more likely stick to the Ama- zon eBook store. Therefore, the users' preferences are the main barrier for buyers to change the retailer and thus the retailers try to differentiate their services, offer additional book-related services.

As buyers are not able to effectively coordinate, the companies need only to take into account the market share that they control. To do so, they need to study consumers’ preferences, try to achieve high customer satisfaction, and try to effectively react and adapt to the changes in the demand.

The threat of new entrants is characterized by the fact that the industry has low entrance barriers. It is relatively not expensive to launch an online marketplace for eBooks or to create an application for reading eBooks.

However, the prices for customer acquisition can be high. The prices for digital marketing are influ- enced by the competition. Therefore, the companies that enter the market have to meticulously cal- culate future marketing costs. For example, according to Semrush (2019), a digital marketing costs calculator, the price of one click on the add showed to the keywords "read romance books online free" as of November 2019 is $2,16. Cost per click (CPC) means the only cost for attracting a user to the store or application. Not all new users will become customers, hence the cost per lead will be higher. Regarding limited contribution margins of the eBook copies, companies have to pay attention to return on marketing investment ratio.

Big publishers are likely not to work with the small participants because they are interested in the work with the platforms that can offer them big sales numbers. Hence, market entrants are likely to start working with smaller publishers and independent authors.

The industry is so easy to enter, so the reputation of the company plays an important role. There are a lot of scams in the industry that make players very cautious. Usually, those are fake publishing

36 (49) and fake marketing companies (Strauss 2019). Vanity presses, the publishers that print books for the money of authors and promise future sales, as a rule, are not interested in the actual sales. They earn money from the assistance in eBook editing and preparation for the sales on main book distribution platforms. Some literary platforms may offer writing competitions that require participa- tion fee and are unlikely to win. Lack of trust in the industry may have negative effects on new entrants. (Strauss 2019.)

Analyzing the threat of substitutes, it must be mentioned that the eBooks industry faces competition with the printed book market and audiobooks as was discussed in the economic environment analysis of the PEST model. The eBook market derived from the printed book market and present a more digitalized way for reading stories; therefore, the printed books are unlikely to be able to eliminate the eBooks.

Regarding the findings of the PEST analysis, audiobooks, as also an alternative to printed books that relies on the recent advancements in the electronic devices, are likely to be a substitution of eBooks. Audiobook market shows steady growth and its share in the publisher’s income structure also grows. Even though audiobooks are clearly will likely to continue to grow, they are not the direct substitute for eBooks and can’t serve all usage cases. Netflix and other entertainment services could also be found as the indirect substitute, especially regarding the fact that as of 2019 they are on the rise. (Loughran 2019.)

The competitive rivalry in the industry is high. There are many actors in the industry due to low entry barriers. The nature of the traded product stimulates the competition. eBooks selling companies have to constantly fight for the customers and eBooks selection they offer to sell. Independent publishing by authors may also leave the middleman out of the business.

High competition already created new sales models like subscription services and pay-per-chapter services in the industry. The competition puts pressure on the prices and decreases the overall profitability in the industry (Recklies 2001).

Based on this analysis, Figure 15 can be created to build Porter’s Five Forces model.

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THE THREAT OF NEW EN- TRANTS • Low entrance barriers • High BARGAINING POWER OF COMPETITIVE RIVALRY BARGAINING POWER OF SUPPLIERS WITHIN THE INDUSTRY CUSTOMERS • Suppliers are publish- • Very high • Customers are indi- ers and independent • Results in the prices vidual buyers authors decrease • Very low • Low THE THREAT OF SUBSTI- TUTES • Pressure from printed books and audiobooks • Middle

FIGURE 15. Porter’s Five Forces Model of the USA eBook market

3.5 Conducting a SWOT analysis for Litnet

The SWOT analysis theory reviewed in Chapter 2 will be applied to our case company and the market research that has been already performed in the previous chapters. The information regarding the internal analysis of the country will be based on the publicly available information, therefore it cannot be regarded as the commercial secret. However, this information will be sufficient for the analysis for the case company according to their needs.

Regarding the strengths of the case company, it has the experience gained through successful operations in several markets – Russian-speaking and Spanish-speaking self-publishing eBook markets. To achieve this result, the company had to introduce successful strategies and overcome difficulties. This gives the management experience needed for better internationalization. However, the utility of this experience is limited to market differences.

The case company is also specifically experienced in eBook marketing and promotion. Regarding the fact that some aspects of the digital market are globalized (search engine optimization, social media promotion strategies, digital advertisements), the company has the benefit of the proven knowledge of digital marketing tools.

The case company has also a well-established Russian-language version of the platform which might be helpful to support other language versions during their developmental stage while they can be not profitable enough in the beginning.

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Designing, creating and running of eBook platform requires significant intellectual resources. The proven ability to launch and operate such platform means that the company has good enough IT department human resources to cope with the various tasks.

The company is still relatively small, thus have the advantage of higher mobility and the start-up mentality. This may mean that the team is more creative, solve problems faster, and be more likely to introduce innovations. (Balliett 2018.)

The case company also introduces a new distribution model that was described in the company overview. The market innovation may give some growth boost until it is copied by the competitors if it is successful. Moreover, innovations help companies to partially evade the competition. Here, the concept of Blue Ocean can be used. The Blue Ocean strategy is the entering less competitive market through the differentiation to the contrary of working in the Red Ocean – the industry with high competition, set rules, and boundaries (Kim & Mauborgne 2019). Of course, a new distribution model does not move the case company to another industry, but it gives some differentiation, which helps to overcome the competition and give more customer value.

Regarding the weaknesses, the possible lack of the experience of the work in the USA eBook market can be regarded as the company's weakness. This includes a lack of connections, possible lack of cultural awareness and understanding market specifics. This might lead to not optimal strategies and mistakes. Therefore, the managers would have to put additional efforts into networking, to learn the market and organize operations.

Another probable weakness is a brand weakness in the market. Negotiating deals and building trust is usually harder between companies from different countries. Therefore, the management might have to face the additional difficulties of persuading the partners to make a deal based on the scep- ticism and wariness of the market players. As was mentioned before in the PEST analysis, there are scams in the market that make the market players more careful.

Our case company might have more limited access to financial resources because it is based out of the USA and other big Western economies. This means that USA companies might have the advantage of better financial resources in the long-term. This can be a weakness for the company. Especially, understanding that the absolute market leader, Amazon, is one of the biggest corpora- tions in the world in terms of market capitalization.

There may be problems with acquiring enough qualified personnel with the required skills and experience. In Europe, there can be difficult to with the potential candidates who have the work experience in the USA publishing market. This can limit the staff extension; thus, it may be a weakness.

Regarding the opportunities, there is a chance of establishing connections with publishers and independent authors who would be eager to find an alternative platform for selling their eBooks.

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Those publishers and authors may want to diversify their income to evade oversaturated platforms with high competition levels.

It may be possible for the case company to achieve successful growth through the differentiation strategy. This is the way to evade the high competition in the industry and to achieve its strategical goals. For example, Litnet could promote itself as a platform for independent authors. Therefore, the self-publishing authors could go to Litnet to escape the competition from on the more saturated platforms with many publishers.

It is also possible that the new distribution model may give some group of readers so much additional value that they become regular users. Until the model is copied by the competitors, the case company would be the only platform that would be the only place that offers readers the same experience.

The case company has also a chance to gain a market share through the segmentation. If the company decides to tailor its customer offer for the needs of a specific genre, this would give it better chances to attract the audience. For example, the company could choose a genre of the literature and try to serve the needs of the audience that prefer the genre. For example, the romance genre which shows the largest sales in the USA eBook market and is the most popular among the indie authors as was shown in Chapter 3. This would give the company the benefit of specialization.

Talking about the threats, the most undesirable phenomenon would be the significant shrinkage of the eBook market in the USA. It could be caused by various reasons. For example, the change in users' behaviours and preferences. User can start watching more video content instead of reading the books or start preferring more the printed books to the Books. There can be different causes

Another foreseeable threat may come from audiobooks that grow popular as of 2019. This issue was discussed in Chapter 3. Even though the audiobooks are not a direct substitute for eBooks, it can decrease the market size measured in revenue.

The dominant position of the market leader might be changed in future to Amazon’s complete dominance and control over the market. In this case, Amazon could, theoretically, use some methods for ensuring its positions and discouraging the competitors. For sure, this is just a theoretical situation and there’s no evidence that the market leader could use the unfair practices. Moreover, one of the USA government’s function is to control the fairness of the competition. But even without those techniques, the dominant position could be enough to slow the growth of the competitors.

Another possible threat is the increase in the competition that will result in a decrease of the industry profits. As was identified in Chapter 3, the industry has low entrance barriers. The increase in the number of competitors could make the players decrease the prices, thus diminish profits or even

40 (49) make the players be in loss. For example, something like this happened in the taxi industry in Seat- tle where the high competition resulted in the companies losing millions of dollars in 2016-2019 (Roberts 2019).

This analysis can be summarized in the SWOT matrix as follows in Figure 16.

STRENGTHS WEAKNESSES • Experience in global eBook marketing • Lack of market knowledge and sales • Low brand awareness in the market • in-house IT product development team • Located far from the market • new distribution model • Possible problems with personnel ac- • start-up mentality and mobility quisition with relevant knowledge and skills OPPORTUNITIES THREATS • Establishing connections with publish- • Risk of market shrinkage due to the ers and authors change of customer’s preferences • Specialization in the independent pub- • Audiobooks popularity rise lishing market • The decrease in the industry’s average • Concentrating on the specific literary prices and profitability genre • The continuing growth of the market • The successful introduction of new dis- leader Amazon tribution and sales model FIGURE 16. The SWOT analysis summary for Litnet in the USA eBook market

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4 SUMMARY

The work can be evaluated as successful because the market research was conducted according to Litnet’s needs and it resulted in profound research on the eBook market of the USA for the case company. Meaningful aspect and factors of the market have been identified and analyzed in the research, and some new strategies have been offered for the company.

This work was done by Andrii Tytenko, a student of Savonia BBA International Business study programme, who has completed his professional internship in Litnet during the final year of his education.

The research implied the review of several market research theories (PEST, Porter’s Five Forces, and SWOT), and their application through the analysis of the external environment of Litnet in the USA eBook market and the company’s internal environment. On top of that, some possible strategies were offered for Litnet in the market. The research helped to get an overview of the USA eBook market, to analyze the industry, and to discover meaningful factors that could influence Litnet while operating in the market.

As found with the PEST model, the external environment for Litnet is overall favourable. The political environment is stable and doesn’t show any signs of risks, even though there are international economic rivalry and political uncertainty. The economic environment is characterized by many factors. The key economic indicators of the USA are positive. The country has a high GDP per capita and low unemployment rate. The USA eBook market, which is the largest in the world, is projected to grow. The legislation of the USA is decentralized, thus the rules of taxation of eBooks differ from state to state. The majority of the eBook sales is comprised of the genre fiction. The most popular literary genre of eBooks is Romance. A vast number of authors publish their eBooks directly, without publishers, which is called self-publishing. In addition to traditional per copy eBook sales, eBooks can be sold through the subscription and pay per chapter models. Also, there is a clear trend of serialized fiction popularity growth. The audiobooks' popularity is also increasing in the USA, which can have some negative impact on the eBook market. Digital piracy also is an issue in the market.

The social environment analysis showed that the market penetration of eBooks is already high and is expected to increase. The most popular devices for reading eBooks are tablets, dedicated eRead- ers, and smartphones. The most common way of finding a new eBook to purchase is through browsing the online eBook store. The most probable motivation for a reader to buy more books would be a price decrease. The technological environment is good for Litnet. The Internet and smartphones penetration rates are very high. eCommerce in the USA is also on the rise.

The analysis of competitors (Amazon, Barnes & Noble, Kobo, iBooks, Smashwords, Wattpad, and Radish) and the Porter’s Five Forces model helped to the investigation of the eBooks industry in the USA. Amazon Kindle is the market leader with 72% of the market. Porter's Five Forces model showed that the suppliers, which are presented by publishers and independent authors, are

42 (49) fragmented. The buyers are individual customers with low bargaining power. The industry has low entrance barriers. There is no direct substitute for eBooks in the market, but there is pressure from audiobooks and printed books. Finally, the rivalry is very high. One of the results of this is the decrease in average prices of eBooks.

The SWOT analysis required to apply the previous results to Litnet, make the internal analysis of the company and made possible some strategy suggestions based on the findings. The strengths are the competencies that the team has in global eBook marketing, IT development team, and the novelty of a new distribution model. The identified weaknesses are lack of the USA eBook market knowledge, low brand awareness in the USA, geographical location out of the USA that can cause some difficulties, and possible lack of personnel with relevant experiences. Opportunities for Litnet include creating connections with the USA publishers and authors, differentiation through specialization in the independent publishing market, concentrating on the specific literary genre, and achieving success through the application of the new distribution model. The threats for the company are market shrinkage due to the change of customer's preferences, audiobooks popularity rise, low industry profits as a result of high competition, and a very strong position of the market leader.

The usage of the well-known marketing frameworks in the research gives it more validity. The possible lack of primal sources for collecting data from the company’s external environment may arise some reliability concerns. However, these concerns are natural regarding the wide scope of the research and specifics of the market. The case company was also informed about this.

Unfortunately, the development of the research was slightly limited by the availability of the data, which was not expected initially. The market intelligence was partially obscured, therefore it required additional efforts to find relevant data. In general, web-based sources were used for the research. The work could be developed further in the future by getting first-hand intelligence from the market participants through interviewing and other research methods. Nevertheless, the research contributes by giving an in-depth analysis of the USA eBook market and some implications from it, which could be utilized by Litnet.

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