Chegg

History

In 2001, Josh Carlson, Mike Seager, and Mark Fiddelke create the precursor to the business called Cheggpost.com, a Craigslist-type classified service for college students at Iowa State University. Aayush Phumbhra, who attended Iowa State University and was an avid Cheggpost.com user, approached Carlson in late 2003 with the idea of taking the company national. Phumbhra mentioned the service to a friend, Osman Rashid, who saw potential in the idea, joined as chief executive officer to help fund the company in 2005, and formally launched Chegg, Inc., which was incorporated in August. Carlson remained until February 2006 and then left to pursue other interests. In April 2006, Chegg found some initial investors, including Sam Spadafora, Mike Maples, and others. The co-founders quit their regular jobs to focus on Chegg full-time. They tested services, acquired three college classifieds businesses, and publicized Chegg via campus campaigns at SUNY Canton and word-of-mouth. In summer 2007, the firm launched "textbookflix.com", which used a textbook rental model modeled after Netflix. Rashid and Phumbhra decided to switch the "textbookflix" name to "Chegg.com" in December 2007. According to a company spokesperson, Chegg rented its two millionth book in 2010.

IPO

Chegg began trading shares publicly on the New York Stock Exchange on November 13, 2013. According to the San Jose Business Times, the IPO raised $187.5 million and gave it an initial market cap of about $1.1 billion.

Ingram Partnership

In August 2014, Chegg entered into a strategic partnership with Ingram Content Group to transfer ownership of both current and new textbook inventory to Ingram, equaling approximately 10% of Chegg’s anticipated textbook volume for the Fall 2014 semester. The partnership is a significant change in direction for Chegg and reduces the overhead costs of handling storage and direct shipping.

In February 2015, Chegg announced that it would deepen its partnership with Ingram by making them responsible for purchasing 100% of textbook inventory. Chegg continues to market the books to students directly, as well as control pricing and catalog selection, while Ingram handles distribution, logistics and warehousing of the books. The intention of the strategic move is to cut costs and work towards 100% digital revenue.

Acquisitions and Investments

Board of Directors

As of April 2015, the board of directors is:

Business model

It is estimated that in 2009, college students spent an average of $667 on their textbooks. A second estimate was $1000 per year, with signs that textbook prices were increasing faster than inflation. Moreover, some college bookstores would offer to buy back the used books for a fraction of their original price.

The founders began noticing the trend of online rental from the success of services like Netflix. Consequently, in the summer of 2007, Rashid and Phumbhra re-positioned the company along the lines of Netflix as a way to rent textbooks to students. Since Chegg had little money initially, when an order came in Rashid would buy the book using a credit card and have it shipped to the student until automation came later. At one point, with a huge volume of traffic on his credit card, his credit card firm suspected fraud, but Rashid was able to persuade the credit supplier to extend credit using multiple numbers of cards.

Books normally rent around half the retail price; for example, a macroeconomics textbook priced at $122 at a college bookstore would rent for $65 at Chegg. But savings varied from book to book.

Stories in campus newspapers helped spread the idea. One senior at Arizona State University calculated he would spend about half as much renting books than buying them for one semester. The idea clicked. In 2008, the firm hired the former chief executive of Match.com, Jim Safka, to run the firm. In 2008, revenues were about $10 million; in 2009, revenues in January alone were $10 million, according to Safka. The firm has raised additional capital from venture capitalists. The company also started a campus representative program, which paid the enrolled college students per referral for purchases made by other college students.

In January 2009, USA Today reporter Julie Schmit described Chegg as a "leader" in the "burgeoning arena of college textbook rentals." The firm had 55 customer service reps at that point.

Since many textbooks become out-of-date quickly, often replaced with new versions, a key to profitability will be how long a book can be re-rented, or recycled; in the market for rental cars, for example, firms such as Hertz and Avis buy new cars but sell them after about a year or two of service. But what is the useful life of a rented book? "The market can be tricky," said market analyst Kathy Mickey, because professors must use the same books for several semesters in order for book-rental companies to make money on the programs.

Competitors

The college textbook market has a variety of competitors. While the main source of books for college students is college bookstores, there is an increasing number of options. Bookseller Barnes & Noble, which owns 636 college bookstores, began its own textbook rental program in January 2010, largely patterned along the lines of Chegg's service. One report is that Barnes & Noble will rent books at about 42% of their original price, on average. Students can also rent textbooks from their college bookstore or online, with orders shipped to their college bookstore for pickup, according to one Associated Press report.

The U.S. Congress set aside $10 million to encourage college bookstores to rent textbooks, so bookstores are starting a up rental programs as well. Follett Higher Education Group started up a rental program in 2009.

Wall Street Journal reporter Peter King compared several options for textbook rentals in April, 2009. He compared firms such as BookRenter.com, Campus Book Rentals, Chegg, and Textbooks.com which sells textbooks online but offers a guaranteed buyback later, making these books "quasi-rentals". King compared offerings related to an expensive accounting textbook and noted some confusion with book packages, with return labels differing from the firms which had been ordered from; figuring out that the original sources were Campus Book Rentals and Chegg required matching the shipping tracking orders with the email invoices. A Chegg spokesperson said the firm sometimes uses "strategic partners" such as eCampus.com if a particular book isn't in its warehouse, but the reporter wondered whether the use of third party suppliers might cause confusion when books needed to be returned at the end of the semester. Chegg was the "most expensive rental" and charged sales tax. The least expensive alternative was Textbooks.com, although this firm required an upfront expense of $117.50; King surmised the upfront payout would mean college students had less money available during the semester. In all cases, books had to be returned by the deadline to make the cost savings worthwhile. The online alternatives were substantially better than buying the book from the college bookstore and selling it back to that bookstore at the end of the semester. In a test using a different book, Chegg had the lowest price, while other firms did not even carry the book. Textbooks.com, according to the report, does not offer buyback chances to all books it sells.

Other competitors include Perlego, Rafter, Warehouse Deals, and Apex Media.

As for Chegg's online tutoring platform, Chegg Tutors (formerly InstaEDU), there are several competitors, including TutorMe, Skooli and Tutor.com.

Finances

One report is that the firm first received $2.2 million in financing in January 2007, led by Mike Maples (through Maples Investments, now called Floodgate Fund) and Gabriel Venture Partners. In August 2008, Oren Zeev is believed to have invested $4.7 million, then with Primera Capital, led the Series B round of $7 million, which included participation from prior investors Gabriel Venture Partners and Mike Maples. One source suggests the firm raised $57 million in November 2009. Another suggests total equity financing since inception, as of January 2010, is in the range of $150 million, primarily from venture capital funding. Investors include Foundation Capital, Insight Venture Partners, Kleiner, Perkins, Caufield & Byers, Pinnacle Ventures, and TriplePoint Capital.

Green marketing promotion

Chegg has an arrangement with American Forests' Global Releaf Program such that every book rented or sold means that one tree is planted. The firm claims that over five million trees have been planted.