Chegg is an online business based in Santa Clara, California that operates in the ‘learning’ space of the sharing economy. At its inception, the company employed a product business model, primarily offering textbooks to rent both in digital and hard-copy format. The company further evolved into a portfolio of business models: in addition to the original product business model, Chegg has deployed a matchmaking business model to offer a breadth of digital services to students by connecting them with tutors, intern-seeking companies, as well as with various bodies offering scholarships. Where Chegg also offers marketing services to large consumer product companies, it also deploys a multi-sided business model: it leverages its vast access to data to provide tailored marketing campaigns.
The company name is a contraction of the words ‘chicken’ and ‘egg,’ reflecting the founders’ frustration in being unable to secure a job graduation without the necessary experience and/or education.
In 2001 Josh Carlson, with two other students, created a classified-ad type website for students at Iowa State University. The business potential of the site attracted the attention of fellow students, Aayush Phumbhra and Osman Rashid, who aspired to thrust the website’s penetration to the national level. In August 2005, the three graduates launched Chegg, Inc. with Carlson leaving in February 2006. Buoyed by external investment in April 2006, the co-founders resigned from their jobs to focus on promoting Chegg on college campuses across the US and to test the business’ services. Using the Netflix model as a template (after noting the success of the online rental model), they launched the textbook rental site "textbookflix.com" in the summer of 2007 changing it to "Chegg.com" in December 2007. The company floated on the New York Stock Exchange on November 13 2013 raising $187.5m and giving it an initial market capitalization of approximately $1.1 billion.
In August 2014, Chegg entered into a strategic partnership with Ingram Content Group whereby it aims, in the long-run, to take over full responsibility for all aspects of the print rental model – so that it purchases 100% of textbook inventory, controls pricing and stock selection, and holds responsibility for distribution, logistics and stock warehousing. Chegg’s hope is to significantly reduce its overhead costs.
Customers – who they are:
The primary customer group continues to be students attending school or a higher education institution. The original focus was to provide an affordable way for students to acquire learning resources and support, to help them navigate through academic institutional life. This has expanded to providing a platform through which students can access teaching support, internship offers and a great source of information on colleges.
Secondary customers include teachers offering support in disciplines ranging from accounting to Mandarin can use Chegg to provide online tutoring to its subscribers, as well as companies or institutional bodies offering respectively internship and scholarship positions.
Additionally, Chegg also caters to large consumer product brands – i.e., RedBull, Coca-Cola, Tide – that seek to reach the primary student-customer group.
Engagement – Value Creation Proposition
The rental service allows students to use textbooks for half the original purchase price. The convenience of having either books delivered or access online makes the process of learning less burdensome. It also endows students with flexible access to various sources of educational support, that would not be ordinarily open to them, and matches students who need help with tutors that are available 24/7 in under 5 minutes. Chegg also lists internship opportunities, exam preparation/advice and information on both colleges and the various scholarships available to students. This therefore makes Chegg a one-stop platform for college students regarding educational matters.
Chegg uses its connection with over 40 million students to offer marketing services to companies, Chegg College Marketing. Some examples of partnerships ventures are product sampling contained within the Chegg delivery box, experiential programs on campus, direct emails and app/website advertising. Using the rich stream of data collected through the browsing activity of its users – courses, book preferences, student gender, class year, major etc. – Chegg implements tailored marketing campaigns on behalf of consumer brand customers.
Delivery – the Value Chain:
Students enter the details of the books they want to rent for the term on the website. Chegg stores books in a warehouse in Shepherdsville, Kentucky and delivers them using the UPS delivery service. It offers students a 21-day return and money-back guarantee option for any reason. Students send back the books using the pre-paid postage barcode provided paying for any late fees that they may incur.
As previously noted, it is assumed that much of the responsibility for managing each step of the physical value chain will defer to Ingram in time. The ultimate aim of Chegg is to cut costs and achieve 100% digital revenue.
Monetisation - Value Capture
Chegg has historically acquired an inventory of books for which it charges a rental fee – its main source of revenues - from students. Rental fees are less than the retail price of the texts. Students are charged in advance ahead of term allowing Chegg to fund further book acquisitions. Profitability is based on the number of times books are rented before either becoming obsolete (by being revised or updated) or no longer in demand e.g. outside course scope or needs. Chegg does also sometimes offer older texts for sale to students.
For their tutoring scheme they offer packages of $1 per minute, monthly plans of 120 minutes for $72 and $24 a month for 30 minutes, whilst Chegg pays $20 per hour to its tutors.
The Ingram alliance has fundamentally altered Chegg’s revenue model in line with its long-term aim to hand over its print inventory to Ingram and its intention to no longer invest in inventory going forward. This strategy aims to boost overall profitability through a combination of greatly reduced depreciation expenses on books whilst only slightly reducing revenue. Chegg currently also earns a commission through each book rented through its platform from Ingram and hopes to reduce print revenue to zero by early 2017 with Chegg’s revenue being 100% digital. Revenue lines in 2015 were split 54:46 between print revenue (rental or sale) and digital revenue from digital learning services, advertising and commission from Ingram.
Advertising starts from a minimum of $25,000 to beyond $250,000. For the year ended December 31, 2015 Chegg has advertising contracts with 60 consumer brands.
Written by Yathavan and edited by Danielle Reza under the direction of Prof Charles Baden-Fuller, Cass Business School, in September 2016. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2017