Introduction to the AIO-pocalypse
The expected AIO-pocalypse hasn’t happened, at least not in the form we expected. Instead of a meteor impact, it looks more like climate change: slowly raising temperatures that cause natural disasters. Chegg is one of the first victims. Chegg is an ed-tech company that offers students homework help, textbook rentals, online tutoring, and career resources. Founded in 2005, it had its IPO in 2013. In 2024, it reported 6.6 million paying subscribers, and its revenue is down -14% YoY. The culprit: AI.
The Decline of Chegg
The big question is whether Chegg is an outlier or the first of many. More companies are bleeding. And some direct competitors to Chegg are surprisingly thriving. To understand the nuance behind Chegg’s decline, it’s essential to look at the numbers. Chegg filed a lawsuit against Google for abusing its monopoly position in Search to force companies to provide content that it repurposes for AI answers or Featured Snippets. The accusation has legs. Showing answers in the search results directly competes with Chegg’s business model.
Skeptical of AI Overviews
But this isn’t the whole puzzle of Chegg’s problem. Months before the lawsuit, Chegg’s CEO said AI, not AI Overviews, is eating into subscriber growth. The problem goes beyond AI Overviews. Students around the world are using AI instead of web platforms. And you can see it in the numbers as well. Declining brand search volume is a sign of shrinking brand awareness, product/market-fit, and user retention. The fact that brand search volume has been shrinking since 2020 and searches for cancellations have peaked before AI entered the mainstream makes me believe that the brand already had issues.
The Impact of AI on Ed-Tech
Chegg struggled before AI. AI just accelerated the decline. So, why doesn’t Chegg sue OpenAI & Co as well? Maybe, because AI Overviews and their impact are easier to measure. Or, maybe because Chegg’s case could build on the lawsuit DoJ vs. Google, which already ruled Google a monopoly. Chegg could at least block LLM crawlers in their robots.txt. Don’t get me wrong – Chegg’s lawsuit has a strong point. But I also see it as a story for investors: Chegg wants to signal that it needs to take the company private or sell because of a structural change to its business model that it’s not responsible for.
Who Else Is Impacted by AI
Chegg is a harbinger. I looked at other ed-tech sites that lean heavily on SEO and found that almost all of them saw significant traffic losses since ChatGPT came out. The traffic data is supported by research showing that students underwent significant behavior changes. ChatGPT & Co. destroy the value of online tutoring and study tools.
Red Flags
Chegg and the other affected sites show what red flags to watch out for:
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80% organic traffic.
- Young target audiences.
- Information sites, especially marketplaces.
The companies that need to be most careful are overexposed to SEO, offer information as a product, and sell to young people. Other industries that fit the bill and could be next on the list: Gig economy, Online Q&A, Quotes, lexica, encyclopedias, dictionaries.
Building AI Immunity Cells
Not every ed-tech company is in the red. Scribd, Coursera, Udemy, Pearson. Pearson is especially interesting because it’s the UK equivalent of Chegg. Even though revenue is down -3%, and its CEO acknowledged “digital learning trends” (a.k.a. AI) as a challenge, traffic is thriving. Why? Because it’s better diversified: 65% of traffic comes direct, 18% from organic. Each company I listed at the beginning of the paragraph is either less reliant on SEO traffic or offers content that’s hard to copy (e.g., courses).
Turning Around Structural Declines
Turning around structural declines, where user behavior and the market significantly shift, is hard. Sometimes, impossible. So, what can Chegg do except find a time machine and go back 10 years to fix its overexposure on SEO? First, taking the company private to turn it around is a good first step. The pressure of quarterly results makes a strong pivot impossible. Second, Chegg is already working on two smart pivots:
- Get away from content that’s easy for Google to copy/synthesize and focus on interactive tools and experience.
- Explore related markets. Chegg launched Busuu, a language learning service, and Chegg Skills, a pilot program to train students in business-relevant skills and connect them straight to businesses.
Conclusion
In conclusion, the AIO-pocalypse is real, and Chegg is just the beginning. The decline of Chegg is a warning sign for other companies that rely heavily on SEO and offer information as a product. To build AI immunity cells, companies need to diversify their traffic sources, offer unique and interactive content, and explore new markets. It’s essential for companies to be aware of the red flags and take action to pivot their business model before it’s too late. By understanding the impact of AI on ed-tech and other industries, companies can prepare themselves for the future and avoid becoming the next victim of the AIO-pocalypse.