The Hobbit was conceived through other short stories Tolkien wrote during his time as a soldier in WWI. It was published twenty years after Tolkien first began to create the fantasy realm of Middle Earth, and was intended to be read alongside the Lord of the Rings. The Hobbit was published during a time of turmoil and chaos, when Hitler's presence in Europe was growing and war was on the horizon.
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The Hobbit gained popularity and was a hit with both adults and children, all of whom were interested in this meticulously invented world that Tolkien wrote about. Tolkien based his characters and plot arch on ancient heroic Scandinavian and Anglo-Saxon epics which he was translating for, and immersed in, in his academic life. Tolkien drew the outline of Thror's map (Thorin's grandfather) before writing any of the story itself.
The book itself was not intended to be published when it was, but was due to the enthusiastic review of the manuscript by Rayner Unwin, son of the publisher at Allen & Unwin. The Hobbit enjoyed such popularity that a sequel was asked for, and as such it serves as a bridge between the earlier events as detailed in The Silmarillion and the later events detailed in the Lord of the Rings trilogy. A sequel wasn't published for twenty years and The Silmarillion remained unpublished for a further twenty years until 1977.
The Hobbit is written as a high fantasy, and the world-building is to a meticulous standard, including a detailed history, various complete fictional languages, several different races of beings (each with a different culture and history), and several score of characters that are involved in various plots and 'historical' events. This great achivement has inspired many high- and low-fantasy writers since publication (this includes Terry Pratchet, Raymond E. Feist, Patrick Rothfuss, and Brandon Sanderson to name a few) and numerous video and computer games since the birth of those technologies.