Chegg makes big moves to reposition itself

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But what does this mean for the industry, competitors, and a possible IPO?

Late last week, in a press release entitled “Chegg Expands Beyond Textbook Rental Industry; New Educational Services Include Class Scheduling and Homework Help,” the textbook-rental giant discussed its expansion into other educational areas such as homework help and class selection. While many news sites simply reprinted the story, I dug deeper to look at what Chegg has done and the bigger-picture ramifications. 

Let’s start with some history: In early 2010, I made a prediction (and since it never came to fruition, I’m off the hook for having to prove that I made it!). I was positive that Chegg was going to purchase a large marketplace website. To me, it made perfect sense and was a natural fit: if a rental company owned a big marketplace, the company would have access to all of the sellers and most of the inventory, essentially creating a ready-made drop-ship fulfillment model. And in some senses, this has played out, though not exactly as I envisioned. The changes manifested in the form of websites such as Alibris.com providing textbook-rental sites (and other sites as well) with access to the inventory data without the rental sites having to build (or buy) any of the infrastructure.

Based on observations and predictions, I posit that in order for Chegg to go public (the direction in which it the company is apparently headed), Chegg must address three main points:
 1) How it would obtain inventory
 2) How it would engage students during the school year
 3) How it would handle the emergence of eTextbooks
Chegg made a strong statement to the first point when they announced the building and completion of a 600,000-square-foot warehouse in Shepherdsville, Kentucky and brought in Tom Dillon and Barry McCarthy from Netflix. In addition to this massive facility access to inventory at marketplace websites has become easier to come by. 

Chegg addressed the issue of engagement by purchasing CourseRank, a slick course-planning site that delivered amazing technology but was limited by only serving 175 campuses at the time of Chegg’s acquisition in August 2010. Now CourseRank reaches 500 campuses with more growth planned. By embracing and acquiring CourseRank, Chegg added a real social network that allowed students to find friends taking the same classes, rate professors, schedule courses, and–no surprise here–rent their textbooks. This acquisition was a natural answer to the build-it-or-buy-it question, and the ability to get to market faster by acquiring the technology gave Chegg an advantage. The marriage is a great one in that CourseRank had the content but not the reach, the latter being something that Chegg has in spades.

Chegg made a subsequent move to address the second concern listed above when they purchased Cramster in December 2010. Of all the test-prep/note-sharing sites on the Internet, Cramster was the hands-down leader, delivering the most legitimate content, a loyal student following, and revenue from its subscription model. All other competitors in this space have struggled to establish national recognition, and to be completely honest, some of the content on some of the other sites was less than reputable or adequate.

I understood Chegg acquiring both CourseRank and Cramster at the times of purchase, but I wasn’t entirely certain how Chegg would use the sites and services. Now it’s clear to not only me but everyone in the industry how Chegg will leverage its acquisitions and new rebranded position to engage students during the entire school year, not just during book rush.  

While I’m not a Chegg employee and don’t claim any insight into their marketing strategy, it seems to me that the Chegg branding machine will be hard at work generating media, press, local events, contests, and more to turn Chegg into a college brand unlike any website so far has been able to do. I envision them stepping into the role of “the google of college” (lowercase g intended as I mean google the verb and not Google the noun). Consider, if you will, a campaign such as:

  • Need to find a class? Chegg it!
  • Need to choose which professor to take? Chegg it!
  • Need to get answers to your homework? Chegg it!
  • Need to get your textbooks? Chegg it!

The above seems hardly a stretch.

 

If we thought the Chegg machine was turning before, just wait for what seems invariably in store. Chegg has already proven to be a disruptor in an industry that is both conservative and slow to react. If you look at the history of public companies within the textbook-industry space, you’ll be reminded of Varsity Books, which was acquired by Follett in 2008. That Varsity had so much trouble in the public sector (and was subsequently bought quite inexpensively by Follett) was the result of investors not tolerating Varsity’s inability to drive revenue during non-peak textbook months. Chegg seems to have learned the Varsity lesson and is developing non-rush revenue channels to diversify their income streams and branding channels.

So onto the third point of my “If Chegg is to go public, it must do the following” list: How will the company address eTextbooks? As of right now, we don’t know for sure as Chegg has made no explicit statements or overtures. Since starting TheTextbookGuru.com, the question I’ve pondered most is “How will rental survive in the face of an eTextbook revolution?” I suspect that we will soon gain some insight from Chegg, prior to what appears to be an imminent move towards becoming a publicly traded company. Whether the answer comes in the form of another acquisition, a home-grown product, a partnership, or something else remains to be seen.

 

So while BookRenter tries to catch Chegg in textbook rentals, and traditional textbook-wholesalers try to protect the bricks-and-mortar bookstore space, Chegg is in the pole position and putting its foot on the gas pedal.

Comments (3)

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