Identification of the optimal business model on the example of st. Petersburg book market

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The Government of the Russian Federation

Federal State Autonomous Institution for Higher Professional Education National Research University Higher School of Economics

Master's dissertation

Petrova Ekaterina Alekseevna identification of the optimal business model on the example of st. Petersburg book market

V.A. Plotnikov

Saint Petersburg - 2020

Abstract

The rapid changes experienced by book market over the past two decades make worry not only key players of this market but also economists. Since development of new technologies such as e-books, e-readers, or online sales the market has become more complex: while some new participants, which use online sales, are growing fast, many traditional brick-and-mortar shops stop their existence. In modern conditions, the business model of bookstores is transforming. We can observe similar situation in Russia. What is more, there is a lack of economic research on this topic. It is necessary to consider characteristics of the contemporary book market and main players to understand how it works and what trends are present now. The goal of this paper is to explore the structure and features of Russian book market and identify optimal business model for book selling. Saint Petersburg`s market is taken as the example. The author has collected the data about booksellers in Saint Petersburg and conducted various analyses: content, descriptive and regression. The author finds that the situation in the Russian market seems to be similar with situation in the foreign markets: on the book market of Saint Petersburg we can find big players like Bookvoed that try to be more than traditional bookstores but places of culture and recreation thereby winning a large market share. The results of this study show that such characteristics as: number of branches, form of a book shop, presence of website, pages in social networks and mobile application lead to higher revenues of a bookseller. The findings are highly relevant: in the end the author describes an optimal business model and gives practical recommendations for booksellers and potential investors.

Keywords: booksellers, book market, business model, market structure, firm`s revenue, printed book.

Introduction

The rapid changes experienced by book market over the past two decades make worry not only key players of this market but also economists. The main concern is that many book shops cannot survive in conditions of rapid changes experienced by book market and they close. It is important to draw public attention to this problem because books have significant cultural value and their importance should not be neglected. Since development of new technologies such as e-books, e-readers or online sales the market has become more complex: while some new participants are growing fast, several old participants stop their existence. In modern conditions, the business model of bookstores is transforming. It is necessary to consider characteristics of the contemporary book market and main players to understand how it works and what trends are present now. The situation is similar both abroad and in Russia.

The goal of this paper is to explore the structure and features of Russian book market and identify optimal business model for book selling. The author determined the following objectives. Firstly, to study academic literature about book markets. Secondly, to determine the scope of research. This study will analyze the Russian book market on the example of St. Petersburg`s market, identify similarities and differences with foreign book markets and identify the present trends. The author wants to show how in modern conditions, the business model of bookstores is transforming. Booksellers of printed books will be taken into consideration. Thirdly, to collect financial and non-financial characteristics of booksellers, make analysis. Finally, to draw conclusions and offer practical recommendations for managers of book shops and potential investors.

The book market is undergoing a profound transformation due to technology development, changes in consumer habits, which, combined with the importance of the book as a cultural object, makes the analysis of the book market in modern conditions relevant. The uniqueness of this work lies in the fact that, unlike other Russian-language literature, not only descriptive, but also other types of analysis are carried out here, for example, regression. Bookstores act as the subject of research, not buyers or just reading people. Non-financial characteristics of bookstores are collected manually by the author, and not taken from publicly available sources.

The remainder of this paper is organized as follows. Firstly, the author discusses the structure of the global book market. Thereafter, she pays attention on modern global book market, its changes, trends, and perspectives. The literature review section concludes with a review of the concept of a business model as part of this work. Next, the paper addresses to research design: methodology and data. Then, the results are presented and discussed. Finally, the author presents some practical recommendations, some concluding remarks and identifies opportunities for future research.

1. The structure of the global book market

Currently there is lack of economic research that explore Russian book market. The market is still experiencing serious transformations, thereby new risks and opportunities appear. Most of the literature describing Russian book market is federal reports and conference reports, as well as articles by journalists. The problem studied in this research is that contemporary participants of book market cannot adapt to rapid market changes, achieve market growth and they leave market. The consequences may include: monopolization of the market, rising prices, falling demand, increasing illegal book distributors, etc.

The central object of the market is a book; however, term “title” will be used for the works which are new in order to differentiate them from reprinted works (Hjorth-Andersen, 2000). Some scholars also pay attention on the difference between titles and amounts of copies sold. It is considered that both demand and supply sides have undergone big changes since the XXI century started. Probably, the rise of new technologies has the strongest impact. Many scientists argue that e-books are becoming a serious threat to paper books, but others point out that they are not perfect substitutes, moreover e-books help to increase sales of both.

Books have always been playing an important role in the development of humanity. In the new global economy people have a lot of opportunities to cultivate this industry, but it seems that currently very little attention has been paid to that industry. Hjorth-Andersen (2000), Van der Ploeg (2004) and Benhamou (2015) agree that books have significant cultural value and their importance should not be neglected. While some amount of foreign literature concerns this topic, one could hardly find research and data about Russian book market. Several governmental organizations have produced some estimates of key figures of book production and distribution, but there is still insufficient data for detailed investigation. In their macroeconomic study Baten and Van Zanden (2008) declare that expansion of literacy contributes to economic growth. They suggest that literacy could be measured by new books produced per capita. In their article it is highlighted that reading activity is a good proxy for literacy skills because they are slightly correlated.

The literature review begins by considering the general picture of book market, for example, key players, supply and demand sides, types of market. It will then go on to the books and their characteristics, new technologies and provide more details.

The generalizability of much published research on this issue is problematic. Among the existing literature on the book market research can be found micro- and macroeconomic, cultural economics works, the studies which deal with economic growth, industrial organization and applied game theory articles. A considerable amount of literature describing European and American book markets has been published. Although the studies of other markets could be also found, for example about Indian or Taiwan markets, but they are rare. What is more the book market could be divided by different sectors. One of the variants contains: consumer books, schoolbooks, academic books, and professional books.

There is a consensus amid scientists that book industry is undergoing rapid and significant changes (Lubiana and Gammon, 2004; Wilson-Higgins, 2018; Szenberg and Ramrattan, 2015; Picker, 2011). Some analysts add that the meaning of creation and extraction of economic value is reconsidered and the way how consumers seek information is developing (Drуtos and Mуricz, 2006; Rao, Tripathi and Kumar, 2016).

However, consumers rarely think about how books get into their homes, book market has rather complex structure. Many key players act on this market. The “standard” chain starts from authors, who write books, then writings get to publishers where editors, designers and reviewers work on texts. When the book is ready it goes to distributors, it could be small independent shops, as well as large and small chains, internet shops or retailers. Finally, consumers go to these shops and buy books. Nowadays this chain could be much shorter because of special internet services that allow authors to publish their works online without help of publishers and distributors or publishers can sell publication by themselves and not to deal with distributors. Here come several questions. Are the role and functions of publishers still the same? Is there a threat from the self-publishing authors?

These questions appear in previous studies and scholars cannot come to consensus neither about relationship between publishers and authors nor about relationship between publishers and distributors. In the first case some scientists think that despite self-publishing process has become much easier, it has become much more difficult to make people read author`s new book, make good promotion (Hjorth-Andersen, 2000). In other words, currently there are so many titles on the global book market, especially on the Internet, that competition is tough, and it is hard to make your new book recognizable and popular. Hjorth-Andersen (2000) states that authors` role on the book market is almost imperceptible due to unlimited supply of manuscripts also from foreign authors.

Other scientists argue that self-publishing negatively influence publishers. For example, Gilbert (2015) holds the view that publishers are worried to become unnecessary part of the book market because now it is less costly for authors to publish their titles by themselves in electronic format. This format is less risky because e-book could be replicated unlimited number of times and there are no inventory costs. However, the researcher adds that self-publishing is not a perfect substitute for publishers` work (Gilbert, 2015). As it was mentioned earlier, it combines editing, designing, review, promotion, page-proofs, and other activities which help to avoid mistakes and make a book more appealing to customers. This view is supported by Maxim and Maxim (2012). They point out that self-publishing is a very good chance for authors to succeed because their work is not undergoing selection by publishers, and unnoticed title could be a potential bestseller. Similarly, the authors note that significance of publishers cannot be ignored. They mention that in the current situation on the book market publishers should “should re-envision the “book” concept” to achieve sustainable growth (Maxim and Maxim, 2012, p. 1049). What is more, Maxim and Maxim (2012) add that in case publishers turn to e-book format they will have reductions in costs as it will not be necessary to plan the volume and it could be unlimited.

Some authors have mainly been interested in questions concerning relationship between publishers and retailers (Lubiana and Gammon, 2004; Hjorth-Andersen, 2000; Gilbert, 2015; Rynok mobil'nyh ustrojstv i prilozhenij knizhnyj landshaft Anon, 2013). Rynok mobil'nyh ustrojstv i prilozhenij knizhnyj landshaft Anon (2013) categorizes the publishers` schemes of work as follows: 1) publisher publishes - publisher sells, 2) publisher publishes - others sell, 3) publisher publishes - publisher sells, and others sell. Gilbert (2015) in his study about innovations in the book market highlights that Amazon becomes serious opponent of publishers because it handles directly with authors to supply books. Conversely, Hjorth-Andersen (2000) and Lubiana and Gammon (2004) write that, as a recent phenomenon, publishers sell books online straight to consumers and successfully compete with retailers.

It is important to mention that book market is often compared to music and film market (Benhamou, 2015; Picker, 2011; Maxim and Maxim, 2012). Books, films and music all are cultural products and nowadays they all can be distributed via the Internet. Benhamou (2015) claims that markets of music and films are more developed than book market. The process of online distribution of movies and songs began earlier, and people got used to it faster than it happened with e-books market. Maxim and Maxim (2012) also share this opinion and they say that due to similarity of these markets bookseller can apply analogous strategies on the book markets. For example, lowering e-books prices and making access to them easier for customers can lead to increase in sales. Conversely, Picker (2011) doubts that such analogous strategies could be applied because e-book and music files are copied differently, i.e. music files are relatively small. Still, more people prefer watching films and listening to music to reading.

To understand better the structure of the book market, it is necessary to discuss the sectors into which the market is divided. Lubiana and Gammon (2004) identify 4 following sectors: professional literature, academic literature, schoolbooks and consumer books. Sales of consumer book have the biggest share of the market. These sectors seem to have differences and several studies exploring the sectors separately could be found. For example, Torres-Vargas and Lуpez (2014) in their study propose a business model for academic e-books. This sector differs from others because academic publications have narrow circle of readers and such kind of literature is highly specialized. This study focuses mainly on consumer books.

To shed more light on the topic it is important to consider the book and its main features as a good. It is significant because sales of books and behavior of consumer highly depend on book`s appearance. In a study of consumers` behavior Leitгo, et al. (2018) distinguish the following book`s features: size, cover art, title, color, images, author`s name, blurbs/synopsis, authors photo, authors bio.

The more appealing the book looks the higher the probability that consumer will buy it. Books are often related to the category named “hedonic goods” or “experience goods” (Shehu et al., 2014; Leitгo et al., 2018). Leitao L. et al. (2018) in their study examine the phenomenon of impulse buying. They explain the occurrence of these impulses by presence of emotional desires that consumers have when they find a certain book. This explanation is echoed in other surveys on this topic. Authors claim that book`s external attributes play significant role in impulse buying. When consumer finds the book and can project himself onto a character or the storyline, he experiences important emotions and fantasies. Authors call that predilection of the consumer to hedonism and this phenomenon prompts consumers to make purchases without pre-shopping intentions. What is more, authors pay attention to importance of a book cover. When the book`s cover has attractive design, it is probably a signal that the book is of good quality because more money was put to creation of the cover. Also, the author`s name could take on the role of a brand that creates reputation and recognition. When customer see the new book of the familiar author, she would purchase it with higher probability than in situation when the author is unknown (Leitao L. et al., 2018).

Similarly, Shehu et al. (2014) claim that one of the main decisions publishers have to make is how much effort put on advertising a book as it is key factor that contributes to the success of the book. All the efforts of publishers are directed to ensure that the consumer will buy the book. In addition, it is significant to pay attention on the purpose of buying the book. Consumer may buy the book for himself/herself of as a gift. The vast majority of studies on this theme observe that people who purchase a book for someone else are commonly more deliberate about the gift shopping process, therefore they are more risk-averse and judicious (Leitao L. et al., 2018). This means that it is harder to attract and satisfy such customers.

1.1 Modern global book market: changes, trends, and perspectives

The different market models of book market have already been under a close attention of scientists for a long time. Some scientists suggest that the book market is an example of Chamberlinian monopolistic competition. Others currently talk about monopolization of the market, especially in the USA and Europe. What is more, some authors, for example Gilbert (2015), point out that large sellers as Amazon have monopoly power as sellers and monopsony power as buyers.

The model of Chamberlinian monopolistic competition needs to be explained in more detail. In this model every firm has a monopoly power, but when it enters the market the monopoly profits tend to become zero. This concept is named by Edward Chamberlin. The book market clearly demonstrates the work of this model. When a publisher has intellectual property rights to some books it has monopoly power over these titles. This seems to be a winning situation for the publisher as it is almost impossible to find a perfect substitute of the book because it is an experience good. However, many close substitutes could be found on this market. If they are available, the publisher will not gain high monopoly profits on any particular titles.

In a study of Danish book market, Hjorth-Andersen (2000) also discusses Chamberlinian monopolistic competition and exemplifies the book market. Author mentions that publishers have to decide twice. The first time they have to choose which titles they will introduce. Then they have to determine the prices. As there are no perfect substitutes a book is considered to compete with many other books. Therefore, when publishers publish a book they do not need to worry about retaliation from other firms. Often, there are no strategic interactions involved (Hjorth-Andersen, 2000).

In a study of Dutch book market, Van Der Ploeg (2004) shares the conception of Chamberlinian monopolistic competition. Touching the topic of substitutes, he tells about different niches in a book market and every book takes some place on one of these niches. The researcher claims that publishers are able to make monopoly profits, which would be enough to cover the fixed costs. The marginal printing costs of an extra book are very small, so it is profitable to publish books. The author highlights that nowadays the monopoly position of conventional publishers and book shops is undermined by huge online book sellers like Amazon and online dictionaries, encyclopedias, etc. (Van Der Ploeg, 2004).

Thus, probably there is a tendency of big market players like Amazon to become monopolies as sellers. The monopsony power of such e-retailers is that these days it is easier and cheaper for author to publish her new book online than to apply to publisher.

A lot of papers that have been written about changes and novelties in the book market have some information about trend towards print-on-demand (POD, Just-in-Time) (Benhamou, 2015; Szenberg and Ramrattan, 2015; Wilson-Higgins, 2018; Picker, 2011). It is a technology that allows to print paper products in small quantities. This technology includes digital printing that is why it is more economical than traditional printing. The publishers do not have to store books that are purchased quite rarely but can print them in case of order or apply to small companies specialized in such printing.

Wilson-Higgins (2018) in her work highlights four elements necessary to make print-on-demand sales happen. They are: “electronic data interchange (EDI) of orders for books”, “effective book metadata describing each individual book in defined industry standards”, “encoded metadata information into barcodes” and “supply chain innovations in the wider business ecosystems and logistics” (Wilson-Higgins, 2018, p. 47). The author describes the process of book logistics very precisely. She shares the idea that with the development of technology in the logistics in the book industry, for example, barcodes, electronic readers and electronic data interchange, the processes of book distribution became easier and more convenient.

In his work Picker (2011) defines the term “Mediated book”. By this he means that now book could be read not only on paper but on different electronic devices which act as mediators, for example special readers, computers, and mobile phones. He points out that texts in electronic formats are purely on-demand works because they could be produced as soon as consumer wants to see them.

When describing how the book market is modeled, it is necessary to mention selection criteria. From the one hand, a consumer selects books according to her preferences. From the other hand, publishers have to allocate limited budgets and choose the right books for publishing and advertising. The discussion about consumers behavior was held in previous sections, in this section the second alternative will be discussed. As every book is the element of culture, in many cases it is impossible to predict whether it would be successful. So, in general publishers rely upon the characteristics of the author to select books. Shehu et al. (2014) mention the following characteristics: the author's reputation, celebrity status, or the number of the author's former bestselling books. The advertising of book could possibly be one of the signals that the book is considered worth reading. Also, to eliminate the asymmetry of information publishers try to put their efforts to make a book look attractive.

Today we can talk about several big players on the global book market. They are Amazon (e-books + paper books), Google (e-books), Apple (e-books) and Sony (e-books). These innovative companies definitely cause controversy not only in scientific circles but in real life too.

Maxim and Maxim (2012) consider the Amazon model the most successful. Kindle and eReader have similar features and design, them both use e-ink technology that is less harmless for eyes than typical screen. In 2011 Amazon was trading 105 electronic books for every 100 paper books (Gabatt, 2011 cited in Maxim and Maxim, 2012, p.1047). As it was mentioned before it is more profitable for authors to go directly to online sellers like Amazon. Authors can obtain up to 80% of the price charged selling through the Amazon, it is much more than in situation when they go to any publisher. The demand on Amazon`s products is high due to the low prices, large variety, and easy delivery (Maxim and Maxim, 2012). The success of Amazon became a problem of traditional bookstores. Many traditional bookstores cannot compete with Amazon, they close or reformulate their business. For example, publishers could apply model which implies chapters to be sold separately (Torres-Vargas and Lуpez, 2014).

Google`s concept differs from Amazon`s. It is a digital library. A consumer does not need to buy special device to read books from this library, it could be done from smartphone or computer. The most convenient feature of the library is the Google Book Search. One can easily find the needed literature because this base contains a lot of books. Google has signed agreements with many authors and transferred a huge number of books into electronic format. After that the Authors Guild sued Google (Picker, 2011).

As Apple is not a book selling firm, Apple Books is not the key concept of the company, but still this application is a revenue source. This application allows to download books in PDF and EPUB format.

Smoothly moving on to pricing, it should be noted that majority of conflicts with Google, Amazon and Apple occurred because of disagreements about pricing. Publisher cannot set the price that equals marginal cost on a book otherwise it will suffer a loss. It may happen because fixed costs make up a major share of expenses, especially costs of introducing a new title. From the one hand, there are fixed costs such as salaries and rent. From the other hand, there are costs of producing a new title. These include evaluation of manuscript, preparation and editing process, designing, etc. Hjorth-Andersen (2000) in his study analyses the structure of the book market. He defines that the size of the book market is constrained by demand and there are no limitations on supply. It means that publishers can print as many books as they want and there is a free entry into the industry. In his model demand depend on time trend, book price and income. The model entails that the higher will be the number of copies sold the lower the book prices will be (number of copies and price are negatively related). Actually, we can face the opposing effect if the fixed costs decrease. The price will go down, but the number of titles will increase (if fixed costs decreased, now it is more profitable for authors to offer new titles), this would lead to drop in the number of copies sold per title and prices will go up (number of titles and price are positively related) (Hjorth-Andersen, 2000).

Moving on now to consider different pricing models. Researchers tend to agree about the types of pricing models. There are following types: (1) wholesale pricing model, (2) agency pricing model (revenue-sharing contract), (3) resale price maintenance, (4) fixed book prices and (5) “windowing” strategy (Lubiana and Gammon, 2004; Hjorth-Andersen, 2000; Gilbert, 2015; Benhamou, 2015; Dantas, Taboubi and Zaccour, 2014). It could be said that all these types have drawbacks. Dantas, Taboubi and Zaccour (2014) introduce the conflict between Macmillan and Amazon. It happened because “Macmillan wanted to change the wholesale-pricing contract with a revenue-sharing contract (agency model), which would allow greater control on retail prices” (Dantas, Taboubi and Zaccour, 2014, p. 126). In other words the publisher wants to be in the winning position. According to Gilbert (2015), Hjorth-Andersen (2000), Benhamou (2015) several pricing models in the book market could be characterized.

The author of current paper would like to pay attention to resale price maintenance model that is also called Fixed Book Price (FBP) Agreement. It was first used in France in 1981, further adopted by several European countries. The aim of this model is to allow books compete not according to pricing but according to cultural significance. In his study of FBP in Dutch book market, Van Der Ploeg (2004) defines this model as monopoly, inverse situation as competitive market. In competitive equilibrium profits are lower than in monopoly outcome, because under FBP more titles are published. This leads to decrease in number of copies sold and the rise of prices. Despite the fact that the FBP leads to greater variety, prices will be higher, and sales of each title - lower. The Author highlights that FBP discourages booksellers from making innovations, because they are not free to change the price according to desired strategy. Another drawback of FBP is that it is difficult to control how sellers will dispose their monopoly profits. They can either use profits to make sure that rare and unpopular literature will be published or to pay salaries to managers. The author calls upon developing libraries and education, investing in young authors rather than using FBP (Van Der Ploeg, 2004).

Table 1. Existing pricing models

Another inquiry follows logically from the previous discussion: how to finance production of books and efficiently allocate budget. Questions have been raised about the ethics of resale of used books, peer-to-peer sharing, protection of books from defects and forgery, warranties, and piracy (Robie, Kidwell and Kling, 2003; Aigrain, 2012; Dewally and Ederington, 2006; Maxim and Maxim, 2012). Some authors question why, for example, theater is subsidized but books not (Hjorth-Andersen, 2000). Rao et al. (2016) suggest that e-books production and promotion should be subsidized. Van Der Ploeg (2004) claims that authors who write books of high cultural value need subsidizing. He also mentions that local successful books should be translated into other languages and distributed internationally.

Some analysts (e.g. Shehu et al., 2014) discuss book advertising and its relation to sales. They highlight the following problem. In the fiction book market profits brought by sales of successful and promising books cover losses brought by unpopular books. Therefore, book sellers try to allocate their budgets to books of well-known authors, celebrities, authors of bestsellers and often leave aside good and interesting books that are worth reading but written by less popular or novice author. Scientists argue that in fact the situation is reverse: “The sales of books by bestselling authors does not depend on the additional advertising of the books by publishers. In contrast, the sales of books by lesser-known authors can be positively influenced by advertising” (Shehu et al., 2014, p. 126). What is more, it is noticed that in case of book market not only advertising, but also positive reviews could bring increase in sales. Leitгo et al. (2018) suggest authors and editors to use crowdsourcing practices. For example, some investigations have revealed that crowdsourcing enhance customers` brand image.

Not only scientists are concerned about situation on the book market but also some organizations. For example, the European and International Booksellers Federation (EBF) has a very strong belief that paper books should not be taxed on the territory of EU. The experience of Sweden and Finland has shown that book sales rose after cancellation of VAT (Lubiana and Gammon, 2004).

Several studies have revealed that there is a significant drop in the number of brick-and-mortar bookshops (Szenberg and Ramrattan, 2015; Torres-Vargas and Lуpez, 2014; Leitгo, et al., 2018). Such trend can probably appear due to the emergence of new technologies, especially e-books and e-readers and online sales. Some researchers call this phenomenon “disruptive innovation” or “digital disruption”. The term can be loosely described as phenomenon which disintegrates the production chain of books. Benhamou (2015) lists several significant changes: more booksellers compete for attention of readers, structure of production costs modifies, there is a trend to print-on-demand. Current studies suggest one more reason of close of many conventional bookstores: it is mergers and acquisitions. According to Lubiana and Gammon (2004) this fact is a commonplace in European market, and it contributes to the rapid emergence and disappearance of firms. In the same way Szenberg and Ramrattan (2015) point out that when big chains want to increase their market share it might be easier for them to collaborate with smaller book sellers than do it by themselves.

In contrast to mentioned literature, however, several scientists argue that new technologies have not only negative influence, but also positive. Van Der Ploeg (2004) claims that globalization and the Internet made possible economies of scale, the book market now can provide a greater variety and diversity. In her book, Wilson-Higgins (2018) claims that computer systems made book supply chain more developed process, because the electronic exchange of data become possible. Nowadays books can be found automatically by metadata including ISBN (International Standard Book Number) and barcode. What is more, printing and publishing processes improved due to new technologies, this led to reduction of some costs. As production of books became cheaper, consumers could enjoy enhanced supply and greater variety of titles (Hjorth-Andersen, 2000). Several authors suggest that before the rise of e-books paper books and traditional book shops already had tough competition with chains, big retail shops and online printed book sales. Gilbert (2015) in his investigation of American book market provides an interesting example. Some publishers were worried that release of e-books would cannibalize the sales of paper books, so they withheld the release. Unfortunately, it did not lead to increase in hardcovers sales instead the number of copies sold decreased. In case with simultaneous release the sales were higher. Gilbert (2015) points out that close substitute of e-books is not paper books but online sales of printed books.

Many would agree that technology development made printed book production less costly. Debate continues about the question whether the costs of producing and distributing e-books are less than of paper books. Contrary to what most researchers believe, Rao, Tripathi and Kumar (2016) in their comparative study of academic literature in Indian book market claim that electronic books are more expensive than their paper versions. According to the authors formatting and editing costs are equivalent for both types of books, but e-books require more expenses due to “online hosting, server and network maintenance, reformatting for multiple readers, and customer and technical support” (Rao, Tripathi and Kumar, 2016, p. 447). Moreover, e-books sellers spend money for the technologies that save the content from copying and make some restrictions on usage. Here the question of digital rights emerges, however, it will be discussed in more detail later in this section. The authors also point out that costs of e-books are adversely affected by digital rights management. However, the authors overlook the fact that India is a country of developing economics so the results cannot be applied to book markets of developed countries. Another weakness is that they have chosen specific field - scientific literature, and the results also cannot be freely applied to other fields with no explanations.

As opposed to the above ideas Hjorth-Andersen (2000) states that fixed costs have much more impact on publishing industry, despite the expenses of printing have decreased due to technological breakthrough. These are costs of releasing new titles and doing a business. In his work about electronic books Picker (2011) claims that distribution of e-books is less costly as there is no concern about storage, geographical allocation, output number of copies and expenditures of distribution and production. In the same way, Maxim and Maxim (2012) question the advantages of e-book distributors. These distributors do not need to plan the production amount, and sales volume is unlimited as e-book can be downloaded infinite number of times. Due to these reductions in costs e-books sellers have higher margins. Gilbert (2015) also shares this position. He mentions that publishers are concerned that they soon become odd and unnecessary component of the book market while the players like Amazon company will work with authors without intermediaries allowing authors to self-publish. This position is also a winning position for authors because electronic format is a low-risk format as there are low fixed costs, no inventory costs and copies of e-books do not need to be published to meet demand.

Let us now consider another kind of costs that could be met in this industry. The question arises again about the presence of new technologies, but it is not the trade-off between printed books and e-books, it is about the amount of expenses in online and offline selling. Leitгo, et al. (2018) in their study of Portuguese book market maintain that online book sellers became popular because it will be more convenient for customers to make purchases without leaving home, which means saving time, there is a large variety of books in different price categories, all this means significant cost savings. However, then the authors do not make a clear conclusion, they say that brick-and-mortar book shops are in advantage because customers can have in-store experiences there, for example reading and viewing the entire book completely, they also can discuss books with others. What is more some shops can invite authors and arrange a signing session. In other words, conventional bookstores enable customers to “to browse and discover books in a way that an online environment cannot” (Leitгo, et al., 2018, p 49). Jiang and Katsamakas (2010) share the opinion that online shops have the dominance in physical book market, because they cover a greater share of market thus being more profitable than brick-and-mortar shops.

In addition, there is the phenomenon called “switching costs”. It is also worth mentioning as it is directly related to the trade-off between e-books and printed books, these costs refer to loss of existing benefits or making additional efforts during acceptance of new product or service. Huang and Hsieh (2008) in their study of Taiwan market of e-readers draw our attention to switching costs between e-books and paper books. The authors distinguish several types of switching costs, they are procedural, financial, and relational. Several examples are listed in this study. When consumer starts to acquire e-books, she probably will spend some time to install the necessary software and learn how to use the reader of this kind of books, she may consider a risk of a reader not working properly or a fact that the battery could run out. One more reason is that customer can lose some privileges accumulated while using conditional bookstore and reading printed books. However, the authors do not take into account that a consumer can gain new benefits in shops selling e-books, as it is likely that currently e-book sellers offer good discounts to attract more customers.

With the advent of technology, questions about intellectual property began to arise more frequently. Some analysts criticize file sharing, while others argue in favor of this (Lubiana and Gammon, 2004; Aigrain, 2012; Gilbert, 2015; Maxim and Maxim, 2012). Aigrain (2012) in his book about sharing tells that in times before the Internet appeared people who bought a cultural good could freely give it to another person. He adds that some lending and rental services exist in case a person need something but do not want to buy. The author maintains the idea that media industry criticizes file sharing because they earlier had controlled the distribution of files and now are not. “Sharing threatens only exclusive control of the supply of the works” (Aigrain, 2012, p. 29). In other words distributors are afraid to lose money they could have if consumers had to buy files every time. However, currently many large publishers and distributors are able to control distribution. As it was mentioned earlier, the special formats that are available only on specific devices were created. The sharing could be viewed from two perspectives. From the one side, it is individual or peer-to-peer sharing, and it seems to be hard to control. From the other side, there are centralized cites that contain large amounts of information, they are more controllable. The author is convinced that sharing is useful. It has big cultural significance and it allows to distribute knowledge and self-publish (Aigrain, 2012).

Gilbert (2015) discusses the digital right management (DRM) and says that it makes slower the process of e-book distribution. Rao et al. (2016) share this idea. In both research works authors point out that if DRM was less strict and more flexible it would increase use of e-books especially in such spheres as education (Rao et al., 2016; Aigrain, 2012). A word should be said about piracy. This concept is connected to sharing and there is no clear boundary between them. It is definitely a challenge for authors and companies to cope with piracy. At this moment there are many different sites in the Internet that store a lot of digital content and anyone can download it.

Another interesting concept that is developing nowadays in the book market is platforms, i.e. spaces (sites, applications) where many suppliers and consumers can “meet” and make a purchase/sale or exchange. The Amazon is an example of platform where many sellers offer new goods including books. The AbeBooks is a subsidiary of the Amazon and it is an e-commerce global online marketplace that offers books, fine art, and collectables from sellers, the goods could be either new or used. Some researchers (e.g. Robie et al., 2003) highlight that reselling the book brings social welfare benefits, for example, “market demand is met using less physical resources such as paper and ink” (Robie et al., 2003, p.64).

Nowadays book market becomes more and more sophisticated. There are positive such as introduction of new technologies and development of production process and negative trends such as possible extinction of brick-and-mortar book shops. Many problems are discussed in the existing literature but still there are some disagreements. The effective functioning of the market is crucial because books are very important cultural products. Reading books enhances literacy in the age when people seem to get used to pictures and short texts in the Internet. It is necessary to research the book market more and to pay attention of the society to the existing problems.

1.2 The concept of a business model in the framework of the research

Modern scientists agree that there is no universally accepted definition for a business model, however, the relevance of the concept of business models is not disputed. According to Fielt (2013) business models matter because markets have features such as consumer choice, heterogeneity amid consumers and producers, transaction costs, and competition. The majority of comprehensive definitions focus on architectural structure of the business network and the generation of revenues. In recent years, scientists have been trying to summarize knowledge of the concept of business models based on existing academic literature. Basically, the three main functions of the business model are distinguished: value creation, value capture, and value delivery (Biloshapka and Osiyevskyy, 2018; Daeyoup and Jaeyoung, 2015).

For better understanding these functions need to be examined in more detail. Value creation is considered to be creating business value based on the needs of the client, which proceeds from the desire to use value. Value capture includes how the business model is setting up revenue streams through the creation and delivery of value. Value capture is the activity of making profits and appropriating the value that floats in the process of delivering value. Value delivery is characterized as a process of the floating value in a value chain. Value delivery attributes to the contours of the architecture of revenue expenses and profits associated with the fact that the commercial enterprise provides this value. This concept may be associated with strategic behavior in cooperative relationships, alliances, and even competitors (Daeyoup and Jaeyoung, 2015). To make it simpler: value creation is about which useful goods or services a firm creates; value delivery - how the firm routinely distribute this to its clients; value capture - how a firm monetizes this utility. Business values stimulate enterprises to increase customer satisfaction, comprehend customer preferences, decrease inventories, enhance inventory turnover, diminish stock-out situations, and develop time-to-market, that might eventually lead to financial benefits (Daeyoup and Jaeyoung, 2015). To create and sustain consumer value a firm must focus on interacting with its customers: meet their desires and needs, engage in design of products/services, supplement physical products with services, understand their current problems (Biloshapka and Osiyevskyy, 2018).

The concept of company`s value creation is a key in financial and strategic management. Both financial and strategic management are also connected to the concept of business model, it is described by Francine Newth (2012) in her book “Business Models and Strategic Management: A New Integration”. Three constituents of financial management: financial decisions, financial analysis, and strategic planning allow to better administer the performance of a business model. The viability of a business model is estimated using financial approach with an exact focus on the profits, costs, and drivers of revenues. The success of a business model is equally dependent on revenue streams. Revenues as part of a business model could be analyzed by conducting a revenue analysis focused on revenue drivers. In turn, revenue drivers are based either on buyer's purchase criteria or on revenue units.

One of the important objectives of this work is to show that bookstore business models are changing under the influence of technological development and changes in consumer behavior. Some recent academic literature is dedicated to the topic of information technologies and their impact on business models (Teece and Linden, 2017; Najmaei, 2015). Teece and Linden (2017) note that since the invention of the Internet, in “digital realm” firms are concerned about how to capture value from online activities and be confident about they will be profitable launching their business. What is more, these authors claim that firms need to revise their business models when there are changes in technology, consumer behavior, or competitive landscape. However, business models can work for years, their life is finite (Teece and Linden, 2017). Similarly, Najmaei (2015) in his article declares not to separate concepts of information technologies and business models. What is more, he shares the idea that firm has to change its business model according to technological changes and follow its customers and suppliers in implementation of new technologies in order to maintain connections and convert them into profits.

Indeed, such transformations are taking place in the Russian market, which are mentioned in the cited articles. For clarity, the author gives several examples. Firstly, on the Russian book market consumers tent to move into the Internet, therefore, booksellers should follow them: deliver value not only in the store, but also online. Also, nowadays consumers want more than ever want to not just come to the store and buy books but have in-store experience, for example, events or signing sessions. Teece and Linden (2017) in their work highlight that currently competition is not just a rivalry between firms, but a rivalry between ecosystems and collaborations. Following this thought the author draws attention to the appearance of cafes in bookstores. Sometimes the bookseller itself is the owner of a cafй, other times it is a collaboration between a cafй and book shop that brings profits to both.

The author of current paper does not claim to give the full description of business model but wants to describe the factors that influence the monetization of the bookstore, given the changing consumer habits of buyers. The concept of this work is not obviously related to finance, but the above explanation proves the opposite. Considering the management of the formation of the company's revenue in the context of changing consumer preferences is the essence of the current work.

Research Design

Methodology of current article will describe the design of the study and the sample. In this research characteristics of Saint Petersburg book market will be analyzed. Also, the author of this work examines the factors influencing success of booksellers (in terms of revenues).

The following data was collected: (1) the approximate list of booksellers in Saint Petersburg, (2) basic information about these booksellers, (3) financial characteristics of booksellers, (4) information that describe current state of Saint Petersburg book market (i.e. various reports.

The following sources are used in this survey:

Booksellers` websites;

Booksellers` pages in social networks;

SPARK Interfax database, Rusprofile database;

Maps: Google, 2GIS;

Scientific and citation databases, google scholar;

Materials from several major scientific conferences and round tables;

Expert assessments of authoritative representatives of the industry.

The data was collected using two different strategies. First of all, basic information about booksellers (official names, locations, weblinks, etc.) was collected and put into tables manually. The second strategy used to collect financial data in tabular form and merge them using MS Excel and Power Query.