Generative AI has been on the market for two years. Most companies already know, or are at least beginning to understand, how artificial intelligence is changing the way they do business. On the other hand, Chegg is a company that is currently doing everything it can to be the first big victim of GenAI and tools like ChatGPT.
For many years, the company was a popular source for students looking for homework help. Especially during the pandemic, with the move to virtual learning, Chegg has seen massive growth in membership and record stock valuation.
For the company, the end of the pandemic meant worse financial results, but it turned out that the worst was yet to come.
ChatGPT stops chegging
Users using the platform “chegged” the homework – a term used to describe activities related to seeking help and receiving appropriate answers. The company realized that they should have answers to every possible homework problem. Over the years, she has collaborated with thousands of experts and freelancers, mainly from India, commissioning them to prepare answers to users’ questions for a small fee.. The knowledge base was growing and was a huge asset for Chegg, as well as an advantage over its competitors.
Then ChatGPT came along. Chegg customers quickly realized that they no longer need to ask other users and the platform for help. All they have to do is enter the relevant questions into the chatbot and artificial intelligence will quickly suggest ready-made solutions.
There are already a lot of people who have decided that it is no longer worth paying a subscription for Chegg – that’s more than half a million users who have paid up to $19.95. monthly. The price included ready answers to textbook questions and on-demand help from experts, but these users recognized that no need to keep paying for access. The company’s shares fell quickly and the company lost about $14 billion. from its capitalization. Now Chegg’s market value is just $179 million.
Importantly, the platform noticed the threat from AI and did not want to ignore it. It built its own AI products, but it wasn’t enough to convince customers to pay for the subscription. And also for investors not to sell shares.
That was one of Chegg’s problems on-demand specialists were not always available and you had to waitbefore you can connect to them. The resolution of the tasks themselves was not too quick either. At the same time, ChatGPT is not only free, but it works immediately and is always available.
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The head of the company leaves. “Time to Retire”
Investment bank Needham surveyed college students and found that 30 percent plan to use Chegg, compared to 38% in the previous semester. At the same time, 62 percent announced that they would use ChatGPT, and before it was 43 percent. This show that users are gradually moving to GenAI. Ryan MacDonald, one of the bank’s analysts, said that he saw here “not temporary changes, but ones that are more structural, more permanent in nature.” In other words, it will be difficult to convince users who abandoned Chegg for ChatGPT to return to the platform.
Chegg CEO Dan Rosensweig doesn’t seem to believe it either. He developed the company for more than ten years, but in June this year. he resigned after witnessing a sharp decline in stock valuation. He informed the board of his plans to retire.
Nathan Schultz, who also worked at Chegg for many years, took over as CEO. The first decision? Cost cutting. It laid off 441 workersor about a quarter of the workforce. Now he is developing a strategy according to which Chegg is going to be a useful platform for students not only in terms of answering homework. For now, although there are no specific changes, he argues that Chegg offers more complete answers and consulting services, ensuring a higher quality than ChatGPT.
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GenAI was supposed to be a passing trend
Chegg could have started working on AI tools much earlier, but didn’t. When employees asked about the budget for the development of AI, the management of the company rejected these requests. Reason? Execs said chatbots weren’t good enough because they hallucinated. The idea was that ChatGPT and other tools tended to come up with wrong answers. When the AI didn’t know how to answer a question, it didn’t say “I don’t know” but created false information – a process called hallucination.
However, OpenAI and other AI companies quickly fixed their mistakes and improved the quality of the products they offered.
When ChatGPT-4 came out, Chegg conducted internal analyzes and the results were shocking for the company. We found that the answers generated by GPT-4 are often rated by users better than those provided by external experts from the on-demand service.
When the company’s president shared the financial results for the second quarter, they were worse than expected. He also admitted that the appearance of ChatGPT affects the increase in the number of subscribers (there are fewer of them), and also reduced financial projections for the rest of the year. It didn’t take long for investors to respond. In one day, the company’s shares fell more than 45%.
There are changes, but changing market trends is difficult
Chegg has established a close cooperation with the startup Shades of AI. He announced that more than twenty “assistants” were brought in for various scientific fields and specialties. Assistants answer user questions and replace external experts. The costs of providing answers are about 70 percent lower. lowthan before, but it seems to be all in vain.
For now, the platform continues to see a decline in subscribers. The wave, called GenAI, is so loud and strong that it may be unstoppable.
Author: Grzegorz Kubera, journalist at Business Insider Polska
2024-11-16 19:09:00
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