A thought-provoking exploration I’ve been engaged in revolves around predicting which businesses could ultimately face extinction due to the rise of generative AI technology. To date, the education technology giant Chegg stands out as the most significantly impacted entity, witnessing its market capitalization plummet from an impressive $14 billion in February 2021 to a mere $191 million by November 2024. This dramatic decline included a staggering 49% drop in stock value in a single day during May 2023. Over the weekend, The Wall Street Journal released a poignant commentary on Chegg’s declining fortunes:
Since the inception of ChatGPT, Chegg has shed over half a million subscribers—who previously paid as much as $19.95 monthly for prewritten answers to their textbook queries and real-time expert assistance. Its share price has plummeted by 99% from early 2021, erasing an astounding $14.5 billion in market value. Concerns among bond traders are mounting regarding the company’s capacity to generate enough revenue to meet its financial obligations…
A recent survey conducted among college students by investment bank Needham found that only 30% indicated they would use Chegg in the upcoming semester, a significant reduction from 38% in the spring, while 62% expressed plans to utilize ChatGPT, rising from 43%.
Drawing from my experiences as an undergraduate student between 2015 and 2019 and as an MBA candidate from 2022 to 2024, I find myself in a unique position to compare my reliance on Chegg for assistance in my undergraduate finance coursework with my use of ChatGPT for my graduate finance studies. Reflecting on this trajectory, it’s clear that Chegg’s demise, largely attributed to the rise of GPT technology, was an outcome that could have been anticipated in public market discussions.
While some within Chegg’s leadership might dispute this narrative, it’s essential to acknowledge that the platform’s primary appeal has revolved around enabling students to bypass academic integrity by cheating on their assignments. In January 2021, when Chegg enjoyed a market capitalization of $12 billion, Forbes investigated the remarkable surge in Chegg’s business during the pandemic as educational institutions transitioned to online learning. The overwhelming conclusion: students extensively utilized Chegg as a cheating resource. In interviews with 52 students, a staggering 42 openly confessed to leveraging the platform to cheat on their work. Chegg’s success as a cheating facilitator heavily depended on the extensive database it maintained. Despite Chegg’s expansion into various educational services, its mainstay was Chegg Study, which housed a comprehensive cache of 46 million textbook and exam solutions, primarily sourced from freelancers in India. According to insights from Forbes:
Chegg operates out of Santa Clara, California, but its core operations are rooted in India, employing more than 70,000 experts who hold advanced degrees in math, science, technology, and engineering. These freelancers, available around the clock, provide detailed solutions to questions posed by subscribers, often responding in under 15 minutes. Chegg offers additional services beneficial for students, such as tools for bibliography creation, math problem-solving, and writing enhancement. However, Chegg Study remains the primary revenue source and the primary reason for student subscriptions.
“If I don’t want to learn the material,” remarks a finance sophomore from the University of Florida, “I use Chegg to get the answers.”
“I use Chegg to blatantly cheat,” asserts a senior attending the University of Portland.
The overarching issue for Chegg stemmed from its foundational models, which were never designed to compete with the sophisticated algorithms developed by OpenAI. OpenAI possessed a significant head start in crafting extensive language models, with GPT-4 reportedly trained on 1.8 trillion parameters. It raises the question: could Chegg realistically construct a more formidable model using its database of merely 46 million answers?
Ultimately, the lesson here is clear: For businesses relying on inexpensive overseas labor to respond quickly to customer inquiries, the rise of generative AI poses a substantial threat, as these advanced technologies can likely perform the same tasks more efficiently and at a lower cost.
**Interview: The Future of Education Technology in the Age of Generative AI**
**Editor**: Welcome to our discussion today about the impact of generative AI on traditional education technology platforms, with a special focus on Chegg. I’m joined by Dr. Emily Foster, an education technology analyst who has closely followed the rise and fall of companies in this sector. Thank you for being here, Emily.
**Dr. Foster**: Thank you for having me. I’m excited to delve into this pressing issue.
**Editor**: Chegg has experienced a staggering decline in market value, from $14 billion in 2021 to just $191 million today. In your view, what are the primary factors contributing to this downturn?
**Dr. Foster**: The rapid rise of generative AI technologies like ChatGPT has significantly altered students’ access to academic assistance. Chegg’s business model thrived on providing quick answers and solutions, which students now find through AI for free. This shift has understandably led to a drastic decline in Chegg’s customer base and revenues.
**Editor**: You mentioned that Chegg had an extensive database of textbook and exam solutions, which many students used to cheat. How has the change in student behavior impacted Chegg’s appeal?
**Dr. Foster**: Historically, Chegg appealed to students looking for immediate, often shortcut-driven solutions. However, as students increasingly turn to AI for similar answers—often more creatively and across broader subjects—Chegg’s value proposition has diminished. A survey showed a stark decline in students willing to use Chegg services, highlighting a seismic shift in how students seek help.
**Editor**: The Wall Street Journal recently reported that Chegg has lost over half a million subscribers since ChatGPT’s launch. Do you think this trend could lead to the extinction of similar businesses?
**Dr. Foster**: Absolutely. Companies that have not adapted to AI technology or that rely on outdated business models may face extinction. If they fail to innovate and compete effectively with generative AI tools, other education tech companies could experience a similar fate as Chegg.
**Editor**: What can educational technology companies do to survive in this new landscape?
**Dr. Foster**: They need to rethink their value propositions. This could mean integrating AI into their platforms to enhance learning experiences or shifting towards more personalized tutoring services. Collaborating with AI developers or even leveraging robust AI tools within their offerings might help them stay relevant and valuable to students.
**Editor**: It’s clear that we are at a pivotal moment in education technology. As a final thought, how do you see the relationship between traditional education resources and emerging technologies evolving?
**Dr. Foster**: I believe we will see a blending of traditional educational resources with cutting-edge technologies. The key will be finding a sustainable balance where companies innovate using AI to support educational integrity and improve learning outcomes instead of just providing shortcuts for students.
**Editor**: Thank you, Dr. Foster, for your insights. It’s definitely a crucial time for the education technology sector, and we will be watching closely as these changes unfold.
**Dr. Foster**: Thank you for having me. It’s been a pleasure discussing this important topic.