Chegg, a prominent name in online education, is facing one of its toughest challenges as artificial intelligence reshapes the educational landscape. For years, Chegg was a go-to resource for students looking for homework help and study support, especially during the pandemic when its subscriptions and stock value soared. But the release of ChatGPT by OpenAI has created an existential threat for Chegg by providing students with a free, instant alternative to the paid answers Chegg built over years with the help of thousands of contractors.
As ChatGPT gained popularity, students began canceling their subscriptions with Chegg, opting instead for AI-generated answers through chatbots. The impact on Chegg’s business has been substantial, with the company losing over half a million subscribers since ChatGPT’s launch. The stock, which had peaked during the pandemic, has plummeted by 99% from its highs in early 2021, erasing approximately $14.5 billion in market value. This sharp decline has raised concerns among bond traders about whether Chegg can continue generating enough cash to manage its debt obligations.
Chegg has tried to adapt by developing its own AI products, but convincing customers and investors of its relevance in an AI-dominated market has been a struggle. College students are increasingly gravitating toward ChatGPT; a recent survey by investment bank Needham found that 62% of students planned to use ChatGPT, up from 43% last spring, while the percentage intending to use Chegg declined from 38% to 30%.
The company’s challenges led to significant changes at the top. Longtime CEO Dan Rosensweig, who oversaw Chegg’s transformation into a tech-driven platform, announced his retirement, making way for Nathan Schultz, a Chegg veteran, to step in as the new CEO. Schultz took immediate action by laying off 441 employees—nearly a quarter of the company’s workforce—and pushing for international expansion. Schultz aims to make Chegg more than just a homework solution, targeting “serious students” and offering more comprehensive academic support services, such as counseling.
Schultz explained that Chegg is grappling with the aftereffects of its pandemic-driven growth and the uncertainty of how educational institutions will adapt to the AI era. He stated, “In moments of disruption, you have to focus on what you do best,” emphasizing Chegg’s strategy to deliver deeper, more valuable answers and services for students who need more than a chatbot’s generic response.
This shift in educational behavior has been evident beyond Chegg’s user base. Researchers at the University of Illinois found that students had largely shifted from “plagiarism hubs” like Chegg to ChatGPT, as the chatbot could generate personalized solutions directly. Despite Chegg’s efforts to curb misuse, the company now faces the reality that many students view AI as a superior, faster, and free alternative.
Chegg’s journey began as a message board for Iowa State University students and gradually evolved into a textbook rental and homework help service. Under Rosensweig’s leadership, Chegg pursued aggressive growth, positioning itself as a leading educational technology firm. However, around 2022, employees sought resources to develop AI tools, an idea initially met with resistance from leadership. When ChatGPT launched, some within Chegg believed it posed no immediate threat due to the chatbot’s tendency to provide incorrect answers. But as GPT-4 matured, Chegg’s internal evaluations showed it was outperforming some of the human-generated responses Chegg relied on, a revelation that signaled the urgency of adapting to this new AI landscape.
In response, Rosensweig reached out to OpenAI’s CEO, Sam Altman, to collaborate on “Cheggmate,” a service combining Chegg’s vast repository of answers with GPT-4’s capabilities. However, the release of ChatGPT took a toll on Chegg’s subscriber growth, leading the company to withdraw its financial forecasts for the year, which resulted in a 48% drop in Chegg’s stock on a single day. Eventually, Chegg decided to pivot away from the Cheggmate brand, instead focusing on embedding AI technology throughout its offerings, including a partnership with Scale AI to build discipline-specific AI tools.
Chegg’s new AI tools now provide automated answers at about a quarter of the cost of human-generated responses. Despite this innovation, the company continues to lose subscribers, reporting an 11% revenue drop in the second quarter of 2023—the most substantial decline since 2017. Analysts expect Chegg’s revenue to fall by another 15% in the third quarter.
One student, Ahmed Assalmi from Taif University in Saudi Arabia, expressed disappointment with Chegg’s AI-powered answer, which was marked as an “instant response” from either an expert, AI model, or OpenAI-trained system. He felt dissatisfied, describing the answer as subpar compared to the quality he receives from ChatGPT, which he frequently uses for schoolwork.
Chegg’s leadership remains hopeful that its evolving AI tools can cater to students seeking more in-depth assistance than chatbots alone can provide. Schultz has expressed confidence in the new direction, stating, “We’ve given the company a road map that integrates AI in the right ways for us. Now we’re in execution mode.” However, with increasing competition from free AI platforms and skepticism among students and investors, Chegg faces a challenging road ahead as it navigates a market transformed by artificial intelligence.