The ed-tech behemoth Chegg is slashing severely to remain afloat, reporting plans to cut around 388 workers, nearly 45% of its workforce. This latest round of cuts represents one of the largest downsizing efforts in the company’s history and underscores the existential threat that artificial intelligence poses to conventional ed-tech companies.
The job cuts come as Chegg struggles with a brutal new reality: students are increasingly opting for free AI chatbots such as ChatGPT rather than paying for subscription-based homework assistance services. The trend has dented the company’s top line and driven its stock price into a tailspin, compelling management to be radical about cutting costs and overhauling its business model.
This is not Chegg’s initial attempt at right-sizing. In May, the company reduced its workforce by 22%, explicitly blaming the fast pace of adoption of AI tools for the move. That another, even bigger round of layoffs has come so soon suggests the problem worsened more quickly than managers predicted.
How Generative Technology Is Erasing the Value of Chegg?
Generative AI has essentially upended the value proposition of Chegg. Students have been paying month-to-month subscriptions for years to view the step-by-step solutions to textbook exercises and to receive homework assistance. But applications like ChatGPT can now do the same, instantly and at no cost, so that it is difficult for Chegg to justify charging a subscription fee.
The firm has attempted to battle back on several fronts. Chegg sued Google in February, alleging that the search giant’s AI-driven summaries in search results were damaging traffic to Chegg’s site and sales.
The suit indicates just how seriously the firm is taking the competitive threat posed by AI, both from specialized chatbots but from AI features being integrated directly into the very search engines that brought customers onto Chegg’s site to begin with.
In spite of the problems AI has caused, Chegg acknowledges that it can’t just hold out against the tide. The company has also been developing its own AI technology and retooling its academic study products with artificial intelligence.
One of its new products is an AI-powered automatic flashcard generator. The question is whether they’ll be sufficient to reclaim students who have already found free alternatives.
The figures paint a grim picture. Since Chegg listed in 2013, its share price has fallen by 99%, erasing almost all shareholder value. The market capitalization of the company, which hit almost $14.7 billion during the pandemic-fueled boom for online education, has fallen to around $156 million now.
That precipitous drop almost had severe repercussions. Chegg was threatened with delisting on the New York Stock Exchange in April after its stock had traded at below $1 per share for 30 straight trading days, a critical threshold that sends delisting warnings.
Chegg Shakes Up Leadership as Ed-Tech Pioneer Fights for Survival in the AI Era
Amid the turmoil, Chegg has shaken up its leadership. Dan Rosensweig, who previously led the company, is returning as CEO. He’s replacing Nathan Schultz, who will transition to an advisory role, working with Rosensweig and the board during this challenging period.
The leadership transition follows after Chegg deliberated for months, considering different proposals and strategic options. In the end, the firm chose to hold on to its independence instead of merging or selling out, staking its chances on successfully making this transition on its own terms.
Chegg maintains that it is still committed to its fundamental offerings, such as textbook rentals and online tutoring, even as it transitions to the AI age. The firm is evidently hoping it will be able to survive alongside artificial intelligence and not replace it, framing its services as supplements to AI tools instead of substitutes.
Chegg’s plight is a warning to the entire ed-tech sector. As the capabilities of AI improve and become more ubiquitous, any company whose model depends on delivering information or simple problem-solving support has a questionable future. The question isn’t whether AI will upend education technology; it already has, but whether older players can remodel rapidly enough to make it through.
For the 388 workers being let go, the disruption to the industry is personal. For Chegg, the next few months will decide if its restructuring and AI spending can revitalize growth, or if the company that led online student services will be the latest victim of the artificial intelligence era.
