Chegg and the Changing Textbook Market

Students don’t have a lot of money; in fact, universities are constantly strapped for cash and practically begging alumni for money.  Nevertheless, the education sector remains enormous; there are more than 18 million undergraduate and graduate students in the United States today – approximately 6% of the US population.  On top of tuition fees, these students are encumbered by a number of other costs, including student housing, food and entertainment.  What's worse, many of the companies that make money in this space do so by charging exorbitant fees for items that are in high demand such as housing, and precious few are working to save students money.  One of the companies to take a crack at this market is aiming at one of the most frequently heard gripes from students – textbooks.

There is an almost $6 billion market for textbooks in the United States and individual texts. Textbooks – especially for courses in the sciences – rarely come cheaply, even when one can find them used.  The dilemma students are faced with is that at the same time they must pay for (increasingly expensive) classes, whilst spending a significant amount of cash at the outset of a semester for books that will only be relevant to them for a few short months.

The innovation of Chegg is to take advantage of the gap between when the textbooks are produced and when they stop being useful to students – if students can rent textbooks instead of purchasing them, they can save significantly.  This model also allows textbooks to be distributed to multiple students efficiently before the next revision is published.  Chegg began as a service solely at Iowa State University in 2005 as a classifieds directory, but the service continued to be developed and in the Fall of 2007 was released as a rental service.  Chegg is offered at over 6,400 Universities and Community Colleges in the United States.  As part of its green initiative, Chegg has also partnered with American Forests to plant a tree for every textbook that is rented, bought or sold.

Although Chegg was founded by Osman Rashid and Aayush Phumbhra and was funded initially on Rashid’s credit card, to date Chegg has secured almost $220 million in venture funding and has rented its two millionth book in 2010.  Books are typically shipped out of a Shepherdsville, KY warehouse and may be rented by the term (quarter or semester).