After the pandemic, the online education company Chegg enjoyed a booming market cap, reaching $12 billion at one point. Now, the company is valued at around $159 million – around a 90% decline.
Why? Many of Chegg’s users have started using free artificial intelligence (AI) apps instead of paying for Chegg.
As a result, Chegg lost nearly half a million subscribers in the third quarter of this year alone, bringing its total subscriber base down to 3.8 million. In contrast, at its peak in the second quarter of 2022, about 5.3 million people paid roughly $20 monthly for Chegg’s premium study services.
In a recent press release accompanying the U.S. Securities and Exchange Commission (SEC) filing, Chegg CEO and President Nathan Schultz acknowledged AI’s impact on their business: “Recent technology shifts and generative AI have created significant headwinds,” Schultz said.
Chegg didn’t implement AI when they had the opportunity.
Chegg’s original business model relied on a team of people to research topics, answer common class or test questions, and respond to subscriber queries.
In 2022, when Chegg struggled with challenges from late-pandemic disruptions, employees proposed developing AI tools to automate answers. However, according to the Wall Street Journal, Chegg’s leaders didn’t act on the suggestion.
When ChatGPT launched, Chegg executives didn’t believe it was a threat because the chatbot tended to generate incorrect answers. However, within months, students increasingly turned to ChatGPT for help. To Chegg’s surprise, some answers from ChatGPT even outperformed those from Chegg’s human experts in internal evaluations. On top of that, ChatGPT is completely free, giving users no reason to use Chegg. This ultimately led to a steep decline in subscribers.
Chegg’s downfall serves as a warning to other businesses: they must adapt to modern technology to stay competitive. Companies must embrace AI and find ways to take advantage of its potential. Simply experimenting with AI or making minor implementations isn’t enough. To be successful, companies need to rethink their processes—for example, how they design, sell, market, support, and price their products in an AI-driven world.
For Chegg, it may be too little, too late. Though Chegg is currently testing AI-powered learning tools, including practice questions, study guides, and flashcards, the company hasn’t been able to convince customers and investors of its value in a market transformed by ChatGPT.
Even with Chegg’s struggles, it isn’t the first and definitely won’t be the last company to be displaced by AI. Chegg’s downfall should remind companies to keep up with new technology and not be complacent. AI is a revolutionary technology that companies need to figure out how to leverage to stay relevant.
