Chegg’s success as a top edtech platform faced a dramatic decline with the rise of ChatGPT. Chegg, once a leading homework help platform, struggled as students moved to free, fast AI options like ChatGPT. This shift led to a 99% stock drop and significant layoffs for Chegg. Initially slow to respond, Chegg tried creating its own AI tool, Cheggmate, but it couldn’t compete with ChatGPT’s popularity. Under new leadership, Chegg now offers AI-assisted answers and live counseling to retain users. However, its future remains uncertain in an evolving, AI-driven education market.
Chegg’s Early Success and Evolution
Chegg’s journey started in 2000 as an online forum for University of Iowa students. Founded by Josh Carlson, Chegg combined “chicken” and “egg” as a symbol of how students often face cycles of problems in their academic journeys. Carlson teamed up with Aayush Phumbhra, an MBA student from India, and Osman Rashid, who helped guide Chegg’s shift toward textbook rentals. By 2010, Chegg grew into a comprehensive academic resource, acquiring Cramster and adding study guides, creating a suite of tools for student support. Under CEO Dan Rosensweig, Chegg became a subscription service for homework help across various subjects.
Chegg’s growth soared, especially during the COVID-19 pandemic, when students flocked to the online resource for answers during remote learning. Known as “Chegging,” students relied on Chegg’s quick solutions to complex homework questions. Chegg’s subscriber numbers and stock price tripled, becoming one of the most valuable edtech companies in the United States.
The Disruption by ChatGPT
In November 2022, OpenAI introduced ChatGPT, a sophisticated language model designed to generate human-like responses. It quickly became popular for answering queries on various topics. Students quickly realized the power of ChatGPT: it was free, fast, and available 24/7. In contrast to Chegg’s subscription-based model, ChatGPT provided homework answers without financial barriers or delays. A swift shift occurred as 62% of students planned to use ChatGPT. While only 30% intended to continue with Chegg. This shift highlighted the growing preference for AI over traditional academic resources.
ChatGPT’s efficiency meant students no longer needed to wait for expert-verified answers from Chegg, which sometimes took time to compile. As MBA student Jonah Tang put it, “It’s free, it’s instant, and you don’t really have to worry if the problem is there or not.” This sentiment highlighted the reasons behind ChatGPT’s instant appeal for students, who were abandoning Chegg at an alarming rate.
Financial Impact and Layoffs
The impact of ChatGPT on Chegg was both rapid and devastating. Chegg’s stock value has fallen 99% from its 2021 peak, resulting in a $14.5 billion loss. The subscription decline led Chegg to lay off a quarter of its workforce—441 employees—to cut costs as its revenue dipped. Concerns about Chegg’s financial stability grew as demand for its services dropped. Bond analysts questioned the company’s ability to meet its debt obligations amid the declining subscriber base. The layoffs and declining stock prices marked a turning point for Chegg. Its business model became vulnerable to free AI tools.
Chegg’s Attempt to Catch Up with AI
While Chegg eventually recognized the power of AI, its initial response to ChatGPT’s popularity was slow. Before ChatGPT’s launch, Chegg employees suggested automating responses using AI to handle demand, but these requests were reportedly denied. Initially, Chegg’s leadership underestimated ChatGPT, assuming that the chatbot’s tendency to generate inaccurate answers would limit its appeal. This approach proved shortsighted, as internal studies showed that GPT-4’s answers scored higher in accuracy than Chegg’s human-generated solutions.
Chegg partnered with OpenAI to develop “Cheggmate,” an AI tool leveraging its content library. Using GPT-4, it aimed to deliver more accurate answers. However, despite high hopes, Cheggmate struggled to gain traction. And by the next quarterly earnings call, the project was put on hold. Chegg collaborated with Scale AI to develop over 24 AI systems tailored to various academic fields. However, By the time Chegg partnered with Scale AI, the company had already suffered significant damage to its user base and market position.
How AI Transformed the Edtech Landscape
The Chegg vs. ChatGPT story highlights a broader shift in edtech, where free, AI-powered solutions challenge traditional subscription models. LLMs like ChatGPT offer personalized support, generating solutions in seconds. While these tools are not flawless, often hallucinating information, they remain attractive because of their convenience and accessibility. Students have largely accepted the minor inaccuracies as part of the trade-off for instant answers.
Chegg’s decline underscores the disruptive power of AI in edtech, where companies must adapt quickly to remain relevant. Hence, As more companies introduce AI tools, competition for student engagement will intensify. This pressure will drive edtech firms to continuously innovate and adapt.
Chegg’s Current Strategy and Future Prospects
Under new CEO Nathan Schultz, Chegg has implemented AI-assisted answers and live counseling sessions to differentiate its services. However, As more companies release AI tools, competition among edtech firms for student engagement will grow. To stay competitive, these companies will need to innovate and evolve their offerings continuously. Also, many investors remain wary of Chegg’s ability to sustain value in a rapidly changing market.
Chegg’s shift to proprietary AI aims to balance quality and speed, areas where LLMs may fall short. However, with free AI tools widely available, Chegg faces challenges in proving its unique value. The competition for student engagement intensifies. So makes it difficult for Chegg to stand out in a market flooded with accessible AI solutions.
Conclusion: Chegg and the AI-Driven Edtech Revolution
Chegg’s decline from a leading edtech company to a struggling business highlights how AI is reshaping traditional business models. The rise of ChatGPT revealed the vulnerability of pay-per-use models, as accessible AI could meet needs once filled by paid services. This shift has disrupted traditional business models, highlighting the growing preference for free, instant AI solutions. So, for edtech companies, the lesson from Chegg’s story is clear: to stay relevant, they must adapt to the fast-paced advancements of AI. Also, Chegg’s continued pursuit of AI tools is a testament to the challenge and necessity of embracing change in a field where innovation and accessibility drive student engagement.
Ultimately, the Chegg vs. ChatGPT tale offers a glimpse into the future of education technology—a future where the line between human expertise and machine assistance continues to blur.
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