What Happens to Chegg When We "Disrupt" the Textbook Industry?

It's still not clear what Apple will announce at its big "education event" on Thursday. But no matter the outcome, it seems clear that the world of textbooks is changing. How will this influence the textbook rental giant Chegg?

January 17, 2012

All eyes are on Cupertino this week -- well, New York this time actually -- for an announcement from Apple that will purportedly deal with digital textbooks. More on that from me later, as I'll be reporting from the event.

Speculation about what Apple will do aside, there's been some certitude that the world of textbooks and educational content will be digital -- if not now, then soon. And while that might bode well for the new app economy, while it might making sharing, collaboration, and distribution easier, it might spell the end of plenty of "brick and mortar" textbook stores.

But will it spell the end of Chegg, the online textbook rental giant?

A bit of trivia: Chegg was originally named Textbookflix.com, but changed its name to Chegg in 2007. The word is a combination of "chicken" and "egg" -- as in "what came first?"

What came first for Chegg was building a massive textbook rental distribution system (printed textbooks, I should add). While not a "chicken and egg" problem per se, the idea of building a company on renting printed textbooks does seem a little bit of a "dinosaur egg" sort of effort. You might hatch a huge beast, but will evolution outpace it?

Chegg claims to offer students a cheaper and more convenient way to acquire their textbooks by renting them online. Books are mailed to students for the duration of the semester (along with return shipping labels) for a savings (according to Chegg) of about 60% over the cost of buying a new book. But with the push for e-books and online resources, is there a future in printed textbook rentals? (And we need only look to the struggles that public libraries and Amazon are having in coming up with agreements over what e-book lending looks like to see that digital rentals may not be the easiest path forward, even if Chegg does make that switch.)

But the company does have a decent runway as it is extraordinarily well-funded (Crunchbase puts its total investment at $219 million). Over the last 18 months or so, it's used those reserves to acquire a number of Web startups: CourseRank, Cramster, Notehall, Student of Fortune, Zinch, and most recently 3D3R Software Studio. Those startups offer course recommendations, note-sharing, study guides, and tutoring services, among other things. When integrated into the Chegg system, these services do help feed the textbook rental part of the business; but it's clear too that Chegg is diversifying beyond its core.

Doing so means that Chegg aims to become a destination site or portal for a range of college students' needs related to their courses -- and not just the need for books at the beginning of every semester. It's not clear, however, that the Chegg brand is strong enough for that. Although students may be likely to shop around for their textbooks, looking beyond the campus bookstore for the best deal, that doesn't mean that they necessarily see Chegg as the place to shop. A more likely e-commerce destination may be Amazon, of course. A more likely place to look for notes on a class may be Google (to start the search at least). And a more likely place to turn for course recommendations may be friends (and Facebook).

But Chegg says that as it gathers data on students -- based in part by tying in to students' Facebook profiles -- it will be able to make better recommendations according to its "education graph." With Facebook profile data alone, Chegg will be able to ascertain where a student lives, where they attend school, and so on. With purchasing and rental data, Chegg could be able to offer suggestions on courses, books, and study aides.

But the wildcard here does remain the publishing industry and what will happen (Thursday at the Apple event and beyond) with digital textbooks. In one of my 2012 ed-tech predictions, I predicted that Chegg would acquire an e-book distributor or app -- something akin to Kno perhaps (the two companies actually share a founder in Osman Rashid). Of course, college students have been fairly lukewarm to digital textbooks, and it could be we're off-base predicting the death of the printed textbook.

But as the textbook industry changes and as Amazon becomes an important e-commerce site and mobile hardware supplier, the future of Chegg will be interesting to watch.


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