AI Competition Forces Chegg To Lay Off 22% Of Staff, Close Offices

Chegg, a major online education company, is restructuring its operations and cutting 22% of its workforce. This is in response to changing trends in education technology, where students are increasingly turning to AI-driven platforms like ChatGPT instead of traditional services like Chegg’s textbook rentals and tutoring, according to CNBC. 

The company, which has been experiencing a noticeable decline in web traffic, anticipates this trend will persist. Chegg attributes part of the slowdown to changes in the digital world, especially as Google expands its AI-powered search features. This has kept more traffic within its own ecosystem, with searches now increasingly funneled through Google’s Gemini AI platform. 

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Additionally, competitors such as OpenAI and Anthropic are offering free subscriptions to attract academics, adding pressure on Chegg’s business model.

In a further move to reduce costs, Chegg will close its U.S. and Canada offices by year’s end. The company plans to scale back on marketing, product development, and other operational expenses to streamline its operations.

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These cuts will result in an estimated $34 million to $38 million in restructuring charges, which are expected to hit in the second and third quarters of the year. However, Chegg forecasts that by 2025, the restructuring will save between $45 million and $55 million, and up to $110 million by 2026.

Along with the layoffs, Chegg reported a 31% drop in subscribers for the first quarter, bringing the total to 3.2 million. Revenue also fell by 30%, down to $121 million, with subscription services contributing a significant decline.

In addition to these internal changes, Chegg filed a lawsuit against Google in February. The company claims that Google’s AI-generated search overviews have been eroding demand for original content, ultimately affecting Chegg’s traffic and its ability to compete with free AI services.

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