There are various reasons why novellas may perfectly fit the niche of epublishing.
First of all, many readers still prefer to own physical copies of those larger 500- to 1,000-word works of fiction.
(I will confess my own guilt in this regard. When I purchased the latest unabridged edition of The Count of Monte Cristo, I purchased a paper copy--which came in at 1,100+ pages.
On the other hand, the economics of printing don't really work for novellas. Novellas are notoriously difficult to display in bookstores, because their spines are so thin.
But novellas can be profitably published at lower prices. That could suit the needs of both publishers as well as readers.