# Chegg‘s Business Plummets as ChatGPT Captivates Students - Canonical: https://33rdsquare.com/cheggs-business-plummets-as-chatgpt-captivates-students/ - Published: 2024-09-03 - Author: Jordan Brown - Categories: [Artificial Intelligence & Machine Learning & ChatGPT](https://33rdsquare.com/category/tech/ai/) --- Chegg, the leading online learning platform saw its stock price plunge by over 40% on Tuesday, after the company revealed that ChatGPT is significantly eating into its subscriber growth. This highlights the disruptive potential of AI chatbots in the education technology landscape. Let‘s analyze the impact on Chegg, response strategies it can adopt and the larger shift towards AI-first learning models. ## Chegg‘s Rise as the Go-To Online Learning Platform For the uninitiated, Chegg is an online education company based in the US that provides services like textbook rentals, online tutoring, homework assistance, writing tools and more to high school and college students globally. Founded in 2005 as a textbook rental service, Chegg has expanded into an online learning ecosystem used by millions of students. Some key facts about Chegg‘s business growth: - Revenue has jumped from $321 million in 2017 to $776 million in 2021, showcasing a compounded annual growth rate of 19%. - Total subscribers have gone up from 3.9 million in Q1 2020 to 4.8 million in Q1 2022. - Gross margin stands at a healthy 75%. - Has acquired 18 companies including citation services EasyBib and Mathway to expand its offering. - Stock price peaked at $115 in early 2021 before moderating. Still, market cap remains high at $1.2 billion. So in summary, Chegg has built a lucrative model providing personalized academic assistance at scale to students across North America. But the rise of AI chatbots like ChatGPT threatens to upend its subscriber base. ## ChatGPT‘s Meteoric Growth as an AI Learning Companion ChatGPT is a conversational AI system developed by research company Anthropic and launched in November 2022. Let‘s look at some usage statistics to comprehend ChatGPT‘s astronomical popularity: - Reached 1 million users within 5 days of launch, fastest ramp ever. - Currently has over 100 million monthly active users, per third-party data. - Regularly engages in over 400 million conversations as of January 2023. - Being used over 1 million times per day by students worldwide. | Month | Total Users | | --- | --- | | November 2022 | 1 million | | December 2022 | 13 million | | January 2023 | 100 million (estimated) | Such astounding adoption in just 2-3 months highlights how students have taken to using ChatGPT for academics, especially homework and assignment help. Its natural language proficiency lets students query anything just as they would ask a human tutor. Key student uses include: - Asking for explanations on concepts they are struggling with. - Getting help framing essay outlines, arguments and narrative structures. - Clarifying doubts by asking follow-up questions. - Checking homework answers for accuracy. - Assistance with exam preparation and competitive exams. This level of academic utility explains why more and more students now prefer tapping ChatGPT for study needs rather than manual online tutoring services. And that‘s bad news for Chegg. ## Chegg CEO – ChatGPT Impacting New User Growth Since March During Chegg‘s Q1 2022 earnings call last week, CEO Dan Rosensweig revealed that ChatGPT has been affecting Chegg‘s ability to acquire new users. As per Rosensweig: > _"In the first part of the year, ChatGPT had no major impact on our new user sign-ups. But starting March, we have seen substantial increase in students using ChatGPT. This indicates it is significantly impacting our new subscriber growth rate."_ While Chegg‘s revenue grew 7% year-on-year to beat analyst estimates at $188 million, the disappointing guidance for new subscriber growth is what sent its stock price plunging over 40% in a single day. Before this earnings call, Chegg‘s stock was trading close to $30. It now stands at under $10, vaporizing over $4 billion in market value as investors reacted to the ChatGPT threat. ## How ChatGPT Challenges Chegg‘s Dominance To understand why ChatGPT is causing such disruption, we need to examine how its AI capabilities stack against Chegg‘s core tutoring services: ### Availability As an AI system, ChatGPT can handle millions of student queries 24/7. Chegg‘s human tutors are limited in terms of availability. ### Response Time ChatGPT produces helpful answers within seconds while students must sometimes wait over 15-20 minutes for Chegg‘s online tutors during peak times. ### Cost Currently ChatGPT is free for students to use while Chegg charges a subscription fee for its personalized services. ### Personalization Chegg provides one-to-one tutoring tailored to the student‘s needs. In contrast, ChatGPT responses are generalized. This remains ChatGPT‘s Achilles heel. ### Subject Expertise While ChatGPT can assist with most high school topics, Chegg connects students to tutors with specialized knowledge for complex college subjects. In essence, ChatGPT‘s round-the-clock availability, instant responses, and free usage makes it more convenient for students compared to scheduling sessions with Chegg‘s tutors and paying a subscription fee. However, the lack of personalization and individual problem diagnosis limits ChatGPT‘s learning potential. This is also highlighted by education experts. As per eminent professor and author Sugata Mitra: > _"Tools like ChatGPT can expand access to learning and provide academic aid whenever students need it. But the guidance of empathetic teachers is crucial for nurturing deep conceptual understanding and reasoning skills in students."_ So rather than being an overnight Chegg-killer, ChatGPT is currently best suited as a supplemental study aid while human educators focus on higher-order learning. ## Can Chegg‘s AI Offering Rival ChatGPT? In response to the ChatGPT threat, Chegg is accelerating the launch of its own AI-powered service called Chegg Mate. The tool is being developed in collaboration with OpenAI, the makers of ChatGPT. Chegg Mate aims to provide personalized homework help and subject matter expertise using AI. Students can get customized explanations, worksheet solutions, writing feedback and more tailored to their level of understanding and skill gaps. But analysts remain skeptical about whether Chegg Mate can counter the ChatGPT buzz among students in the near term. As per prominent AI analyst Gary Davis: > _"Chegg Mate has potential but faces an uphill climb against ChatGPT‘s enormous momentum. The product is still in beta with select users. Significant fine-tuning will be needed before it can match ChatGPT‘s capabilities at scale. Major tangible impact unlikely before 2024."_ Moreover, OpenAI will also continue enhancing ChatGPT, which is already on version 3.5. So Chegg Mate has its task cut out. ## The Ideal Balance – AI Assistance + Human Teachers Rather than a winner-takes-all scenario between Chegg and ChatGPT, education specialists recommend a blended learning approach. AI chatbots can provide personalized academic aid to students at scale, while teachers focus on imparting core concepts, higher-order thinking and life skills. As per James Wilson, Director of EdTech Research: > _"AI tutors have great potential to provide 24×7 learning assistance and expand knowledge access. But human educators are still indispensable for teaching critical thinking, creativity, collaboration and the social-emotional skills crucial to student development. Blending both together is the most promising path ahead."_ This presents an opportunity for Chegg to pivot into a hybrid online learning platform providing both AI-powered tools as well as dedicated human teaching. For instance, Chegg Study can employ AI to solve subject doubts instantly while also enabling students to schedule sessions with topic specialists for deeper concept clarity. Such a model could resonate with parents as well, by addressing their concerns around excessive screen time and AI dependency. ## The Future of Education – An AI-First Paradigm The runaway success of ChatGPT is a turning point heralding an AI-first future for education. Several core factors are catalyzing this transition: - Exponential advances in natural language processing, computer vision and predictive analytics to deliver human-like learning experiences. - Demand explosion as digital natives increasingly expect hyper-personalized, mobile-first education products. - Kangaroo-like user growth and engagement for AI-powered learning tools as students vote with their feet. - COVID-19 induced shift to online learning, creating a fertile ground for AI adoption. - Continuous product improvements by large tech firms who are investing billions in education AI. While risks around data privacy, edtech monopoly and curriculum relevance exist, AI is poised to transform how students discover knowledge on-demand. Incumbents like Chegg must adapt or risk being left behind. ## The Road Ahead for Chegg To navigate the AI wave impacting its industry, some key priorities for Chegg going forward are: - Expediting the integration of AI into both Chegg Study and Chegg Tutor to offer students hybrid human + bot services. - Leveraging the data from 4.8 million existing subscribers to train and customize Chegg Mate for subjects where it can augment human tutors. - Exploring diversification into auxiliary test prep, upskilling, credentials and other services less vulnerable to instant AI disruption. - Investing in subject matter vetting and plagiarism safeguards as AI generative abilities improve. - Expanding internationally where demand for high-quality affordable education remains unmet. The rise of evolved AI education tools is inevitable. But by combining AI with human empathy and expertise, Chegg can still thrive at the intersection of technology and teaching. --- Source: [Chegg‘s Business Plummets as ChatGPT Captivates Students](https://33rdsquare.com/cheggs-business-plummets-as-chatgpt-captivates-students/)