The Inevitable Collapse of Chegg

In February 2021, Forbes ran a cover story on Chegg, a self-described “connected learning platform” that had rocketed to a $12 billion valuation.

However, Forbes’ coverage was not so kind. Its headline described Chegg as “Getting Rich Off Students Cheating Their Way Through COVID.” The rest of the article highlighted concerns that the site, which provides answers to students, was widely used for cheating, even highlighting that “Chegging” was a slang term for “Cheating.”

A few months later, a study interviewed 52 students using the site and found that 48 of them were using it for cheating.

But for all the concerns, Chegg was raking in the money. According to Forbes, Chegg was the most valuable edtech company in America at the time, with over $600 million in annual revenue.

Now, just three and a half years later, Chegg’s fortunes have changed. Last week, the company announced that it was laying off 441 employees, nearly a quarter of its workforce. It’s the company’s second round of layoffs in as many years. Chegg’s stock, once over $116 per share, now hovers under $3 per share, a loss of over 97% of its value.

Though its revenue remains high, its net income has crashed from $266 million in 2022 to just $18.2 million in 2023.

This change in fortune can be summarized in just two letters: AI.

The public launch of ChatGPT in November 2022 upended the for-profit cheating industry. Answer sites like Chegg, essay mills, and other cheating services struggle to compete with free competitors.

Why should I buy a $10 essay when I can use any number of AI systems to generate one for free?

As bad as AI has been for academic integrity, it’s been even worse for the paid cheating industry. Chegg has become the poster child of that collapse.

However, it may be too early to count Chegg or other sites like it out.

Hitting A Landmine

The sudden broad availability of AI caught nearly everyone flatfooted. Though generative AI had been in the works for a long time, it went from being available to an exclusive few to everyone overnight.

To be clear, we are still understanding how this impacts us today. For better or worse, AI will leave no industry untouched.

However, no industry was and is more vulnerable than the contract/paid cheating industry.

The reason is simple. By its very nature, cheating is about the path of least resistance. Students who opt to cheat are breaching ethics by taking a shortcut.

This means that the second an easier, faster or safer way to cheat becomes available, students will pivot to that. Mail-order essay mills gave way to frat files, which gave way to copy/paste internet plagiarism. That became too risky and gave way to online essay mills and “automatic paraphrasing” tools. The list goes on.

Cheating students care only about four things: quality (to a point), ease, cost and the likelihood of getting caught.

AI easily surpasses traditional contract cheating services on the latter three items. However, even with quality, AI is often “good enough” to fill the need, making it a moot point.

Chegg’s entire business relied on them being seen as the path of least resistance. The minute that stopped being true, the wheels came off.

However, Chegg is not taking this shift lying down.

Trying to Pivot

In a bid to remain relevant to students, Chegg has focused on two tactics.

First, Chegg has been embracing AI. The Chegg website no longer promises simple “expert study help.” Instead, it claims that the help is “enhanced by AI.”

Chegg also claims to have developed its own AI tools that aim not just to teach you the answer but also to help you learn how to solve the problem.

Second, Chegg has focused on expanding its services beyond the traditional “homework help” that makes up its core product.

One way Chegg has done this is to rebrand Thinkful, a direct-to-student learning platform it acquired in 2019, as Chegg Skills. This brings it into competition with sites such as Skillshare, albeit with a greater focus on career-related skills.

Another approach has been the addition of Chegg Perks. In 2023, Chegg inked deals with other companies, such as Doordash, Tinder and Adobe, to include their premium plans in Chegg’s subscription.

In short, Chegg is trying to make its subscriptions more valuable to students beyond its core business of “homework help.” However, this will likely be a difficult sell in an era of rising subscription fatigue.

This is especially true considering that students can already get these benefits on other sites and aren’t unique to Chegg.

Bottom Line

To be clear, Chegg is still a giant in this space. Its net revenue in 2023 was still $716 million. It’s a massive entity with multiple parts we didn’t even look at, such as its textbook business.

However, that size belies a much darker truth about the company. According to its most recent earnings report, Chegg’s revenue for the first quarter of this year was down 7% compared to last year, and the company lost $1.4 million. Though they still have 4.7 million active subscribers, that’s a decrease of 8% from last year.

Chegg is still a juggernaut, but it is a giant in decline. Embracing AI and signing deals with Tinder won’t likely change that reality.

Simply put, catering to cheating students is a fool’s errand. The second a faster, cheaper or easier shortcut comes along, there’s no ability to compete on brand and almost no way to compete on quality.

Cheating students are an incredibly fickle target audience. Building a business on them is like laying your foundation on shifting sands.

This is true even for a company whose name is synonymous with cheating.