Chegg's Business Model Crumbles Amidst Rise of ChatGPT

A devastating blow to US-based edtech giant Chegg has left the company teetering on the edge of a financial downfall caused by the rise of OpenAI's innovative language model, ChatGPT.

Estimates suggest that $14.5 billion in value has been wiped out from Chegg's stock, plummeting by 99% from its 2021 peaks. This drastic decline comes alongside an overwhelming loss of over half a million paid subscribers and over 20% of Chegg's workforce (441 employees) who were laid off earlier this year.

The fall in revenue and bond trade analysts' concerns have been ignited due to the surge in students cancelling their Chegg subscriptions, according to a report by The Wall Street Journal. A pressing question on everyone's mind is whether there's a direct correlation between the increasing use of large language models (LLMs) like ChatGPT.

"ChatGPT has changed everything," said Jonah Tang, MBA student and one of those who swapped from Chegg for ChatGPT. "It's free, it's instant, and you don't really have to worry if the problem is there or not."

The dramatic shift in students favouring ChatGPT over Chegg might stem from the free access, rapid completion, and confidence-inspiring accuracy of answers generated by LLMs.

While the company attempted to fight back with a new product called Cheggmate combining GPT-4 technology with its existing library of solutions, it ultimately failed. According to experts, ChatGPT poses potential risks due to the prevalence of information hallucination among these innovative models.

"LLMs can never be used for fact-finding tasks as they return answers by guessing at what sequence of words or phrases should make up a sentence," explained Craig Zilles, a computer science professor at the University of Illinois. This calls into question the overall reliability and trustworthiness of LLMs in academic settings.

This alarming situation raises concerns whether Chegg can recover without losing its existing customer base. The company has recently started offering more AI-assisted answers combined with live counselling sessions as it aims to attract students seeking additional help beyond free AI resources.

It remains uncertain what the long-term future holds for Chegg, but one thing is clear - in a rapidly evolving market dominated by innovative AI tools like ChatGPT, only those willing and able to adapt can survive.