Chegg – Robust Demand For Direct-to-student Learning –
24 June 2021
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Iam Williams (IW)
Specialist:
Former SVP, Technology & Operations at 2U Inc
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Agenda:
1. Chegg's (NYSE: CHGG) subscriber count additions
2. Demand across Chegg Services and Chegg Study
3. Innovation and new product roll-outs
4. E-learning services outlook
Contents
Q: Could you give an overview of the educational services industry across e-learning and edtech? How is the
industry structured and how has it changed over the last few years?
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Q: Who are some of the top players in e-learning or direct-to-student learning? How has the competitive
landscape transformed?
Q: Could you further define the student success category and what capabilities you think a player needs to
provide to dominate the market as Chegg has?
Q: What consumer trends were impacting direct-to-student learning prior to coronavirus?
Q: Could you give us a high-level overview of how Chegg has transformed over the last five years, whether
through acquisitions or strategic shifts?
Q: Could you speak to that strategic importance of the required materials business, given everything is
online and Chegg is experiencing most or all of its growth from the services side of the business?
Q: How does a player such as Chegg or a competitor such as Course Hero or Quizlet take advantage of some
of those trends you mentioned earlier across different demographics, consumer price points and even
employers who are trying to upskill some of their employees?
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Q: How would you compare some of Chegg’s products, and what would you classify as its most important
subsector within the different services it offers? Which one is most important to Chegg and what do you
think is the main growth driver?
Q: You mentioned the low reputation with publishers and faculty due to the inherent nature of the business
model. Could you speak to the content side of things? Does Chegg have an opportunity to be a content
creator, or do you think the barriers to entry on that side are too high for the way it is currently set up?
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Q: Could you discuss the different firms that Chegg has acquired? I know you mentioned a few acquisitions,
but how do you think Chegg goes about its acquisition strategy? Do you think it is spreading itself too thin or
do you think its previous acquisitions were well within the student success category it caters to? Which
acquisitions were of true strategic importance to the company?
6
Q: You made an interesting point about Chegg’s reputation within faculty due to the inherent nature of the
business, and how it’s structuring itself around student success and is considered as a partner to students.
How does the company act as a partner to students in a holistic sense without trying to also partner with
universities and expand market share that way? Are there opportunities for Chegg to take a holistic approach
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beyond the student, or do you think the way it is perceived in the marketplace is too prohibitive to this?
Q: How sustainable are Chegg’s coronavirus-related gains?
Q: How would you assess Chegg’s performance in adapting to new consumer habits, including the
credentialing trends you mentioned earlier? How has Chegg responded to some of these trends?
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Q: Do you think Chegg doesn’t especially promote the credentialing business due to the legacy issues around
reputation? Do you think people recognise Thinkful for the name of the business and not necessarily because
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Chegg owns it? What is your take on the credentialing challenges?
Q: Do you think Chegg is doing anything differently that is translating into higher sales, given the growth in
its subscription model for some of its services? Is it just benefiting from its overall strength in e-learning,
and, as you said, students having additional resources at their fingertips that they wouldn’t necessarily have
in front of the classroom instructor?
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Q: Could you discuss the subscriber account growth Chegg has achieved ex-US? How does the international
growth strategy differ from targeting the US consumer at some of these well-known universities?
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Q: How does Chegg’s pricing and affordability compare to the overall market’s? How does the company
leverage pricing to drive even more volume at a time of significant demand? Do you think this is the time for
Chegg to tighten up pricing and maximise margins by reducing promotional activity, thereby capitalising on
the higher growth that’s already occurred?
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Q: How important are partnership strategies in Chegg’s categories? What strategies are entrants using to
take market share from the company? Could you touch on the D2C model, where Amazon is coming in and
working with the publishers, as well as universities working with publishers directly? Could you comment
across physical and e-learning on this side?
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Q: Have there ever been copyright issues from the publishers around the content Chegg provides to students
from them? Have publishers taken a strong stance on not wanting their content out there, or does this not
really matter in today’s world?
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Q: Could you discuss Chegg’s scaling? Do you consider it scaled enough in the categories it plays in or is
there a long way to go in achieving this? Could further competitive advantages be achieved with a much
larger presence?
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Q: Does Chegg have opportunities to vertically integrate into the other edtech subcategories you mentioned
earlier? Which categories could drive synergies for Chegg?
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Chegg – Robust Demand For Direct-to-student Learning
Transcription begins at 00:00:01 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Chegg – Robust Demand For Direct-to-student
Learning. I am Nyree Hinton and I will be facilitating today’s Interview with Mr Iam Williams, former SVP,
Technology and Operations at 2U Inc.
Iam, before we get started with today’s Interview, please state I agree or I disagree to the following statement:
You understand the definition of material non-public information and agree not to disclose any such
information, or any other information which is confidential, during this Interview.
IW: I agree.
NH: Thank you, Iam. Can you give the audience an overview of your background and the various roles you’ve
held in the industry?
IW: I’ve been in the edtech, in the educational services industry for over 20 years now. I started out in K-12
developing one of the first skills-based and knowledge-based assessment platforms and learning platforms in
the K-12 market in the turn of the century, the early 2000s. I’ve since worked for major publishers, John Wiley
& Sons and McGraw Hill, doing both traditional as well as innovative technology and content solutions. Most
recently, I worked at 2U, one of the leading OPM providers, providing product and technology leadership and
management.
[00:01:31]
Q: Could you give an overview of the educational services industry across e-learning and edtech? How is the
industry structured and how has it changed over the last few years?
IW: It’s quite a broad industry overall. There are a lot of different segments of edtech in general. There’s
technology supporting both the infrastructure side at institutions and enterprise and IT side, for student
information systems, identity access, all those types of things. Admissions and enrolment in higher education,
big technology area, and then I think the area we’ll probably focus on the most today is the student success
and instruction or teaching and learning. Even within this space, there are multiple sub-categories of learning
management systems, courseware, library services, assessment, academic integrity. All of these things play a
key role, and not to mention the learning content, the materials used for study, which is where Chegg
specifically got its start in terms of being a reseller in that space, and then study tools and credentialing and
these types of things, which is where you’ve seen Chegg evolve in terms of their competitive and product
offering. It’s a very broad space, huge space, I think we’ve just seen so much new momentum in the space
around online learning as well as innovation trends with blockchains and VR and augmented reality and these
types of things from content providers. I think it’s a very fast-evolving space where technology really brought
that evolution, that innovation to the learning space, which had been fairly static for hundreds of years.
Textbooks were pretty standard and tried and proven way of learning with instructional support from
instructors, so technology has really opened up that space incredibly over the last really 20 years, for the most
part.
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[00:04:07]
Q: Who are some of the top players in e-learning or direct-to-student learning? How has the competitive
landscape transformed?
IW: If we’re specifically talking in context of Chegg, we can go into that because there are a lot of top
providers, the publishers, the Pearsons, the Wileys, the Cengages, McGraw Hills, those publishers still provide
a huge amount of market share in terms of the actual content. There’s still a lot of dominance by the content
providers in that area and then there are the resellers of that content, so the Barnes & Nobles, the Amazons,
working through college bookstores and in partnership with college bookstores. We definitely see a lot of big
names and big players in that space, but where Chegg has really evolved their business is more on the services
side and the direct-to-consumer side. I think that you’re really looking at things like Quizlet and Course Hero,
in terms of competitive players in the place for the services. Looking at that sub-aspect of the space, there are a
lot of start-ups in that direct-to-consumer space as well, but Chegg is definitely one of the biggest players, in
addition to the Quizlet and Course Heros, in terms of being able to provide student success around learning,
which is the sub-category that I’m really seeing Chegg has the most growth in.
[00:05:58]
Q: Could you further define the student success category and what capabilities you think a player needs to
provide to dominate the market as Chegg has?
IW: This is really about looking at what students need to be successful beyond their courseware or their
textbooks, which is the core of many curriculums, and what are those services? You have on-demand tutoring
and question and answer capabilities, so the ability to have in the moment, I need to know something really
quickly and how do I get that information the fastest? I’m doing my homework, studying for a test, these types
of things. Oftentimes students are no different than the rest of us in terms of last-minute cramming for things,
so it’s really that on-demand body of knowledge and services, whether they be human-moderated or
technology-moderated, in terms of providing in-the-moment solutions to student problems.
Other areas of services in here are also around the ability to surround that student success with things like
internships or loans, student loans, scholarships, these types of things, in terms of understanding how to pay
for the increasing cost of education, at least in the United States. Having a well-rounded set of services in that
area is something that I think differentiates and creates an advantage for Chegg. They’re there for all aspects of
the student life cycle, whether it be deciding what to study, what careers to choose, and then, once they’re in
their course of study, how do they spend the least amount of effort to have the most amount of success? I think
that’s one of the key aspects of Chegg that has been attractive for students. More detail is the ability to help
solve a math problem and delivering all of the steps in doing that, being able to create your own flashcards
based upon a custom set of skills that you would need to know, or just using standard available full working of
problem sets and solutions that exist in all the major textbooks. Having that at your fingertips is just a real
huge help to the students in terms of completing their course of study.
[00:09:10]
Q: What consumer trends were impacting direct-to-student learning prior to coronavirus?
IW: I think we’ve seen the ongoing trend of the move from printed materials to online materials, and the e-
textbook movement that has dominated the space over the last decade or so, and the LMS providers. Learning
management systems, they really have helped to drive that move to digital. Even pre-COVID, or pre-online
learning or distance learning, the learning management system was about digitising the content and digitising
the experience. LMSs, e-textbook providers, big trends in the space, and I think that more recently what you’ve
seen is more of a diversification for those ancillary study tools that are more consumer-driven. I think that’s
where you’ve seen Chegg enter the space, mostly through acquisitions over the years, but they’ve really
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provided, again, those services that are ancillary to the primary textbooks or the primary course content, and,
really, how do you surround that experience and provide students with support where they need it? I think
that definitely we see, again, Quizlets, Course Heros, these types of products which are ancillary to the core
content or in parallel to the core content to some degree.
Then other things that we’ve seen is the change in the need for full-degree-bearing courses of study, so more
credentialing and alternative career paths, definitely seen skill-stacking in terms of how end users and learners
will approach their learning. Maybe it’s not necessarily through traditional higher education but through other
services, short courses and boot camps and these types of things, which we saw a huge momentum in the last
several years prior to COVID and definitely continued during COVID.
[00:11:39]
Q: Could you give us a high-level overview of how Chegg has transformed over the last five years, whether
through acquisitions or strategic shifts?
IW: They started out as a textbook provider in 2005, so the last five years, I think, have really seen them less
in that required materials. They break their business up into the required materials, which is the textbook
aspect of the business, vs the services. Those services are in studying and writing and flashcards and math
problem solving and then other things I talked about earlier, the internships and scholarships and life skills,
those kinds of things. We’ve really seen the growth of their services business, really also driven by a
subscription model. I think that’s been a huge aspect of their growth over the last five years, has been that
transition away from the required materials aspect of the business and more focusing on those ancillary
services, and driving subscription modelling in that area has been, I think, the majority of their growth and
success over the last five years.
[00:13:10]
Q: Could you speak to that strategic importance of the required materials business, given everything is online
and Chegg is experiencing most or all of its growth from the services side of the business?
IW: If you look at just the fact that their rental business has steadily declined and the purchase of textbooks
has inclined, and what that’s really saying is underlying that is the move to digital. Usually, the digital
acquisition of the textbook content is a purchase model and not a subscription model necessarily, so the fact
that they’re seeing more purchase of textbooks really says they’re seeing more digital delivery of those
textbooks. That is a key aspect of that business. I think that there’s potential risk there though, because I think
that more and more just the flat delivery of a print textbook in an e-textbook scenario is not keeping up with
the demands and the needs of the educational sector and the users in that space, so I think you’re seeing more
courseware, which is being provided either in partnership with people like VitalSource, with the publishers
playing a major role in still providing that content. They’re really providing more courseware-based solutions
than flat e-textbook solutions that have some functionality but are not as dynamic a learning experience as you
would get out of a courseware, which is providing more in-depth practice and dynamic question generation
and more interactive components inside of those learning materials. The move towards courseware provided
by publishers and other service providers like a VitalSource definitely, I think, puts a risk on the required
materials aspect of the Chegg business.
[00:15:38]
Q: How does a player such as Chegg or a competitor such as Course Hero or Quizlet take advantage of some of
those trends you mentioned earlier across different demographics, consumer price points and even employers
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who are trying to upskill some of their employees?
IW: I would not put Chegg in the category yet of corporate learning. They have some skills based around the
technology boot camp area with their acquisition of Thinkful, in terms of providing skills-based learning in the
technology space, I think might have some play there but we definitely haven’t seen them stray too far away
from their student-as-a-consumer model. It’s going to be hard for them. Most recently they’ve been promoting
a new service where they’re going at providing content creation or creator-type skills to faculty. I think that
Chegg’s reputation in the market with faculty is pretty negative because of the way that they’ve approached the
study aspect of the business. A lot of their early product with Cramster, the acquisition of Cramster, which was
their first major acquisition, was really about a very borderline cheating in terms of all of the answers to the
textbook questions are available online. Faculty and publishers in general have a very low reputational respect
for Chegg and they have a lot to overcome in terms of getting a better reputation as not just providing the
answers to questions directly to break out of the student consumer space.
[00:18:20]
Q: How would you compare some of Chegg’s products, and what would you classify as its most important
subsector within the different services it offers? Which one is most important to Chegg and what do you think
is the main growth driver?
IW: I think the study skills, the study product they have, as well as the math product, the math solver product.
Most of their revenue is coming from the services at this point, and those services are heavily biased towards
the STEM side of things. If you think about computational solving and these types of things, the math solver
and then the textbook studying and live help for homework and other things are probably their most flagship
products. They definitely did get, I think their most recent acquisition was the Mathway product, and, again,
the ability to solve complex math concepts and problems, and they saw strong growth and adoption of that
product in their portfolio. I think it really does speak to a lot of prevalence in that computational problem
solving and solutioning to textbooks that they see as their flagship services at this point.
[00:20:11]
Q: You mentioned the low reputation with publishers and faculty due to the inherent nature of the business
model. Could you speak to the content side of things? Does Chegg have an opportunity to be a content creator,
or do you think the barriers to entry on that side are too high for the way it is currently set up?
IW: It’s not cheap to get into the true content creation. Most of their content creation to this point has been
around essentially taking what is already out there as far as what the publishers have delivered and then
providing additional help and assistance in either understanding or solving those problems. Starting fresh
content is a little bit more challenging. I think that with their acquisition of a company like Thinkful in that
technology boot camp space, that is more pure instructional content creation, so they obviously have some
capabilities and skills in this area and I think there’s definitely opportunity for it. As credentialing and more
skills-based learning, smaller incremental certification of skills becomes more trendy, then there’s definitely
opportunity for them to do that. If they can take and scale what they might know from a Thinkful and bring
that to other sectors of the market, then I think there’s certainly opportunity for them there.
[00:22:01]
Q: Could you discuss the different firms that Chegg has acquired? I know you mentioned a few acquisitions,
but how do you think Chegg goes about its acquisition strategy? Do you think it is spreading itself too thin or
do you think its previous acquisitions were well within the student success category it caters to? Which
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acquisitions were of true strategic importance to the company?
IW: I think that original acquisition of Cramster back in 2010 was a key, a success that they were looking to
repeat numerous times. I think if you look at other aspects of their acquisition with adding tutoring to that, so
not only the ability to solve the problems that are inside the textbook but then potentially also get support in a
tutoring model with their InstaEDU acquisition, which was several years later. Then pivoting a little bit
towards more services like the internship aspect of things, they bought the Internships.com, in terms of
providing more assistance to students beyond their course of study, going on into how to create success
beyond just the educational aspect and the degree aspect of things. I think that was an interesting strategic
move, and one that creates a stickiness and a robustness of services that they have that students will be able to
feel like it is a one-stop shop, so to speak, in terms of their success, whether it be acquiring financial aid or
scholarships or finding internships. I think that creates a higher degree of emotional connection for the
consumer. It’s not just about that point in time where, “I need to solve a problem,” which is great and I think
that people respect that and want that, but I think if you’re creating more opportunity and paths to success
overall, with internships and handling scholarships and these types of things, you’re creating a much larger
emotional connection, which I think is longer-lasting for those students than just solving a problem.
There are a number of different services out there that are not paid and subscription-based where you can go
and solve a math problem, so I think creating a one-stop shop, a more closed ecosystem that students would
never want to leave is their strategy. Allowing you to then be able to cover your essay writing and have that
evaluated with their WriteLab acquisition a couple of years ago is just more ways to keep students inside that
ecosystem so that they feel like, “If I go to Chegg, there’s going to be something there to help me at not only
any course in my study plan but also in any part of my journey and the life cycle.” Whether it’s deciding what
to study or what job to take or to approach internships, all of these things are big challenges that young
students are facing, and if they feel like they have a partner in that, then Chegg can be successful in that
relationship for sure. The acquisition strategy absolutely is try to create more services and deeper services so
that they can cover more of the spectrum of student needs. Absolutely.
[00:26:46]
Q: You made an interesting point about Chegg’s reputation within faculty due to the inherent nature of the
business, and how it’s structuring itself around student success and is considered as a partner to students.
How does the company act as a partner to students in a holistic sense without trying to also partner with
universities and expand market share that way? Are there opportunities for Chegg to take a holistic approach
beyond the student, or do you think the way it is perceived in the marketplace is too prohibitive to this?
IW: Personally, I think it’s going to be hard for them. I think they have a lot of distance to travel in making up
that gap in their reputation from the faculty level, which then also applies to the institutional level as well.
They haven’t necessarily created any strong relationships in that space and really focused on that consumer
space, so it’s a little bit hard for me to imagine them creating very strong relationships in that space any time
soon. I think there’s a lot of work for them to get there.
[00:28:25]
Q: How sustainable are Chegg’s coronavirus-related gains?
IW: A lot of companies are wondering about that, not just Chegg. I think there are a lot of questions in the
space overall. Is COVID a bit of an anomaly and bubble in the acceptance and adoption of many online
learning and remote learning and these types of modalities? Honestly, there are two opinions there. One
opinion is that it essentially accelerated the adoption of a lot of these materials and they’re here to stay. The
model has proven itself and it’s just accelerated that adoption and that acceptance curve, so to speak, for many
different aspects of online learning and digital materials.
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The other one is that it will probably see a dip. It might not see a dip back to pre-COVID, there is still some
growth that will be retained from it, but that, as students and faculty get back to in-person learning, some of
the ancillary aspects of things might go away. One aspect of that could be in the fact that remote instruction
and learning made it a little bit easier to use products that you would not necessarily use inside of a classroom
but use outside of it. If you’re taking a test, and this is a grey area, and I’m not going to say that anybody is
cheating or anything like that, but if you’re taking a test, oftentimes, if that test is proctored, you can’t have any
of the materials open on your computer or you can’t have these things running in the background. Whereas in
the remote space, not everyone was able to get to the point of locking down that experience, to the point where
a lot of these supplementary materials could be used by students in completing assessments or other
deliverables that they might not necessarily have the same experience of being able to do that as freely in an
in-person environment. I apply to both of those strategies, and I think that we’re probably going to see we
have reached an acceptance. We’ve won over a large aspect of the community, in terms of the efficacy of these
materials being provided online, these services online. We’ll probably see a little bit of a dip coming out of
COVID, as people get back to in-person, but then continuing to trend upwards, since we have gotten over a
hump in terms of acceptance and adoption in the market.
[00:32:04]
Q: How would you assess Chegg’s performance in adapting to new consumer habits, including the
credentialing trends you mentioned earlier? How has Chegg responded to some of these trends?
IW: I think, understandably, a lot of Chegg’s approach at this point has been to increase their subscription
model. Of the products that exist right now, the ones they’ve already invested in, the content they’ve already
invested in, it just makes the most sense to scale that model. Being able to take content that you’ve created
once and then get more and more people to subscribe or pay for that content, reduces the overall cost of that
content and allows you to have higher margins. Chegg having a very strong strategy, both in trying to drive
international growth as well as domestic growth here in the States on those existing services, is their highest
profitability, from a margin perspective, opportunity that they have. Really focusing on that is core business, at
this point, to them, the highest growth aspect of their core business, and one that they rightfully should be
spending a lot of time focusing on how to drive that growth. That said, with the acquisition of Thinkful, I don’t
think they’ve had huge momentum and growth in that area, so the question is is that going to be something
they continue to invest in in that space? Unclear. They haven’t had any other additional acquisitions in that
space. They’re not necessarily promoting the credentialing aspect of their business as heavily as other services,
so it doesn’t feel like it’s a core strategy at this point.
[00:34:35]
Q: Do you think Chegg doesn’t especially promote the credentialing business due to the legacy issues around
reputation? Do you think people recognise Thinkful for the name of the business and not necessarily because
Chegg owns it? What is your take on the credentialing challenges?
IW: I think in that space, what you’ve seen, you’ve seen the traditional universities start to get into that space.
I think that you’ve seen high-profile, high-name-recognition, very reputable institutions, like Harvard, MIT,
London School of Economics and all these things, getting into more of those credentialed, shorter learning
opportunities for not only career advancement but also for boot camps, for learning in the technology space
and the knowledge-worker space. You’re seeing more and more of the traditional universities get into that
area. I think it’s a little bit harder for anyone, not to mention Chegg, who doesn’t have the backing of the
reputation of a university or major provider like that, it’s harder for them to get into that credentialing space
within the general area of skills and boot camps and short courses and those types of things. Having that extra
added weight of saying, “I learnt blockchain at MIT,” vs, “I learnt blockchain at Chegg,” is not going to
necessarily carry as much weight.
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[00:36:32]
Q: Do you think Chegg is doing anything differently that is translating into higher sales, given the growth in its
subscription model for some of its services? Is it just benefiting from its overall strength in e-learning, and, as
you said, students having additional resources at their fingertips that they wouldn’t necessarily have in front of
the classroom instructor?
IW: Considering that, at least according to Chegg, most of their growth is organic and not through paid
channels, really says to me that the consumer market was looking for things, especially in the last year-and-a-
half during COVID, that would be helpful, and my earlier comment about maybe a little bit more easy to
deploy or use in a remote learning environment than a synchronous in-person environment. I don’t know
exactly how much of that Chegg can take credit for, to be honest with you. If they’re not getting it through
traditional advertising channels, then they’re probably just getting it through the fact that everybody is looking
for solutions in that area and is able to find it or there is some aspect of this which is Chegg being able to use
the required materials aspect of their business to convert users into the subscription aspect of the business. If
you came for a textbook and then saw that they had all these other things, then you might become more of a
sticky or long-term subscriber to use some of the other services. You’re not necessarily using their textbooks
any more, the textbook solution they have. I think that that’s another way for them to drive that experience, is
to really integrate the full stack. Once they get someone in into one of the areas, being able to then cross-sell
them into other areas, I think is something they’ve done well and that has contributed to their success,
definitely.
[00:39:03]
Q: Could you discuss the subscriber account growth Chegg has achieved ex-US? How does the international
growth strategy differ from targeting the US consumer at some of these well-known universities?
IW: They’ve definitely seen some international growth. I think most of the international growth recently is
mostly due to travel restrictions around COVID, to be honest with you. We’ve seen a lot of that growth in
mostly English-speaking markets, so Canada, Australia, western Europe in terms of a lot of that growth. It’s
clear that people who may have been traditionally travelling to the States for their education probably just
stayed at home during COVID. They were online learning, and we’ve seen a growth in that aspect of their
business. I think there’s a little bit of a COVID bubble, so to speak, in that international growth they’ve seen.
I think that they have not come out and said that they are moving into some of the more high-growth
international markets, like China and some of the other Asian markets. I think that there’s a language issue
here. I think that the conversion of a lot of their content, or the localisation and the language aspect of their
content and their services, definitely requires investment. I think that investment will be very large going into
potentially other large markets like China. The question is are they going to try to explore that? They have not
signalled that they have at this point, from anything that I’ve seen. There’s always the Indian market, which
predominantly language of instruction is English, so I think there’s opportunity there. They have some
presence in that space and I think there’s certainly more opportunity in a market like that, and as well as the
Middle East, which, again, the language of instruction is usually English in a lot of those institutions as well. I
think where you see language of instruction being English provides the most opportunity for them in their
international growth at this point, but I think some of that was definitely driven by travel restrictions around
COVID.
[00:42:03]
Q: How does Chegg’s pricing and affordability compare to the overall market’s? How does the company
leverage pricing to drive even more volume at a time of significant demand? Do you think this is the time for
Chegg to tighten up pricing and maximise margins by reducing promotional activity, thereby capitalising on
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the higher growth that’s already occurred?
IW: I think right now, two key products they have, the study product and the math-solving product. The
math-solving product, which I think has a lot of value to a lot of different fields of study in the STEM side of
things, is at USD 10 a month. I think it’s a fair price. I think there are free options on the market, if people
wanted to find those, they are available, that are less expensive, but the USD 10 a month that Chegg is offering,
and arguably they do have one of the better user experiences. A lot of the free products are a little bit harder to
use, or have restrictions and limitations and then offer upsells inside of that. Very basic and simple,
essentially, USD 10 a month pricing on the math product, I think is a really good value. I think there’s
opportunity to potentially increase that cost. I think that is something that probably the users who are using
that are using it very regularly and would see value even if the cost were to go up a little bit. They might have to
provide some additional service inside that to justify the cost increase, but I think there’s definitely
opportunity on the math product. The USD 20 a month for their study product, again, it’s a very reasonable
price, especially considering that your average textbook will cost you USD 100. Then for only USD 20 a month,
you are getting access to potential solutioning and even different levels of support, which can then be an
opportunity for upsell in terms of that human-moderated support, is a pretty good value.
I think their products right now are very value-priced, and for the types of users who are using that on a
regular basis, there’s certainly opportunity, even if they went with different models. We all know that the
subscription-based modelling, oftentimes you are also taking advantage of the fact that people are not good at
cancelling subscriptions. Even if you go with the introductory pricing that then increases over time, which not
necessarily the most favourable of models but a lot of people will very easily get on board with the introductory
pricing and then, as the price increases, they just continue to pay it because it’s all set up to be auto-paid over
time. It’s definitely a great way to continue sustained revenue, as opposed to one-time sales. Right now, value
price, but I think they could definitely look at different ways to increase the price because I think their services
are high value by students.
[00:46:35]
Q: How important are partnership strategies in Chegg’s categories? What strategies are entrants using to take
market share from the company? Could you touch on the D2C model, where Amazon is coming in and working
with the publishers, as well as universities working with publishers directly? Could you comment across
physical and e-learning on this side?
IW: Again, Chegg did not make any friends in the publishing industry with their initial disruptive model, so I
think if publishers are going to have the opportunity to disrupt Chegg at this point in their life cycle, through a
partnership with Amazon or Barnes & Noble, or someone like that, they’re absolutely going to prioritise that
over a relationship with Chegg. That is my opinion, but that is a well-held sentiment from a number of the
major publishing industries, I believe. The fact that they have access to the student though, and they have a
large traffic to their site through that consumer model, is attractive, especially for the publishers who want to
go more direct to student in general. Honestly, at this point, publishers have been having a hard time of it over
the last decade or so, so if they can provide opportunities for publishers to get more of their courseware out
there direct to students, at a lower cost price than an Amazon, that’s their path to success. It’s not like the
publishers are that stubborn that they would not take a great opportunity if they had that consumer base that
they could have access to, so I think there’s some opportunity there for partnerships at the publisher level.
There’s risk there though, because I think that what’s happening right now is that a number of their products,
like the study product in particular, which is really based around the tight alignment to textbook content, have
the potential to become less relevant as courseware becomes more prevalent. What I mean there is that
instead of having static content inside of a textbook, which is very easy to go in and find the solutions to and
then publish those solutions or steps to solving those problems or additional context or support around that, if
the textbooks become courseware, which is more of a dynamic experience where the question sets are more
dynamic, they’re not necessarily static, the learning opportunities are more interactive and publishers are
providing more of that step-by-step solving and those types of things already inside of the courseware, I think
that potentially creates a risk, as well as the marketplace that the learning management systems have begun to
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provide. If a student is enrolling in their courses and the university enters them into the student information
system and the LMS essentially gets them logged into that learning management system, and they see there all
of their courses and they also have a direct link there, from inside the LMS, to be able to purchase or acquire
that digital course content, whether it be in courseware and e-textbooks, then that potentially creates a
disruption in Chegg, because that’s just such an easy path for students. They log into their learning
management system, all the materials are already there. There are even pushes for schools actually providing
these materials as part of the payment that students are making for their education. At that point, then Chegg
definitely has been disrupted in terms of how students acquire that content. Instead of having to go to a
bookstore, or having to go to someone like Chegg, if it’s all there inside the learning management system
provided by the school, then it’s a much easier path for students.
[00:51:56]
Q: Have there ever been copyright issues from the publishers around the content Chegg provides to students
from them? Have publishers taken a strong stance on not wanting their content out there, or does this not
really matter in today’s world?
IW: It was a battle I think the publishers didn’t want to fight. The sentiment for students towards publishers
was very negative at the time when Chegg was coming out, so Chegg basically was able to say, “We’re your
saviour in terms of these exorbitant prices that textbook publishers are trying to charge for textbooks.”
Students were always angry at the textbook publishers for these expensive textbooks, and so the textbook
publishers did not have a good reputation with students. Chegg comes along and gains their hearts and minds,
and their wallets, so to speak, around that, and does nothing to improve the sentiment towards the publishers
in that space. I think publishers were a little bit nervous to go too hard at Chegg in terms of criticising them,
lest they alienate themselves more from that student base that they’re really trying to provide their services to.
I think there might have been a couple of small legal battles, but nothing of note in that area.
[00:53:47]
Q: Could you discuss Chegg’s scaling? Do you consider it scaled enough in the categories it plays in or is there
a long way to go in achieving this? Could further competitive advantages be achieved with a much larger
presence?
IW: I think there’s a lot of advantage in the scale they have right now. In terms of the body of content they
have right now, I don’t know their back end, looking underneath the hood, but the ability to have content that
is available, that can be distributed across multiple different courses and multiple different solutions, is
obviously both a scale and a cost-savings driver. I think they’ve been smart about trying to approach the
multiple delivery uses of each content asset, or asset they’re creating, into multiple different formats and
potential usage scenarios, has been a good driver of efficiency. I think that their scale in being able to cover a
diverse set of content and needs of the student consumer is also beneficial, again, if you can get those students
in there and continue to have them subscribe and cross-sell them into other areas of your business that you’re
going to be able to retain them at least for the 2-4 years that they’re in school.
The question is beyond that. Beyond that initial relationship, where does Chegg go with that student
relationship they’ve created? Could they potentially parlay that in the future into more of the credentialing and
shorter-course content? Maybe. I think they would have to partner with more reputable institutions of
learning to be able to do that. That’s really a question about Chegg, which is are they going to stay relevant?
Each batch, each cohort of students they’re able to acquire has a lifespan. Once they get out of college and
they’re in the workforce, they probably don’t need Chegg any more. You have to realise that your user life cycle
is limited by time, and you’re always trying to get more of the early stage of new consumers into that space as
well, so you can at least capture them for two to four to six years. Really, ideally, moving down into the K-12
space, what they have done definitely is a way to keep them for even longer, so you get them in the sixth grade
or through the eighth grade through high school, and then on into college, that provides you with a longer
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runway there. I think part of that is also getting to that consumer’s purchasing decision-makers, which are the
parents, and you’re ensuring that their product is seen as of value and integrity to parents as well.
[00:57:42]
Q: Does Chegg have opportunities to vertically integrate into the other edtech subcategories you mentioned
earlier? Which categories could drive synergies for Chegg?
IW: I’ll try to give a short answer to that question. I think there’s probably a lot more in-depth dive into that,
because I think there are a lot of different areas of the edtech space that Chegg could pivot into. I think we’ve
already talked about some of them being the boot camps and credentialing, and those types of things, which
would require some more relationship-building. I think that as far as that direct-to-consumer side, they have a
pretty well-rounded offering in terms of the different types of courses and content they’re providing. I think
they’ve really become a dominant player in the spaces they provide right now. Adaptive learning is a really
hard one to talk about because it has been on the trendy list and then the not-trendy list and then the trendy
list again, in the edtech space, for over a decade now. We’ve seen a lot of initial adaptive learning companies
come and go without a lot of success in terms of actually being able to provide value to both students or
faculty. I think that we see Chegg using “adaptive” in their language, which tells me that they are trying to
create more unique and personalised learning experiences for these students, so that they can get into, “Let’s
just solve this problem for me, and really help understand who I am as a learner and where I would need to
study things, and help me provide a faster and easier path, even than currently, in understanding my
weaknesses and being able to remediate those.” I think that’s the area that they could potentially have growth
in there.
[01:00:19]
NH: We will now end the Interview. Let me close by saying thank you, Iam, for your input, and thank you,
clients, for joining Third Bridge Forum’s Interview today. Clients, if you would like to speak to Iam in a private
call or meeting, please let your relationship manager know. Goodbye.
Transcription ends at 01:00:28 of the recorded material
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