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From small eggs grow mighty IPOs: cracking open the Chegg story

Anna FahertyThis is a guest post from Anna Faherty, an experienced publisher and an award-winning writer and lecturer. Anna teaches on the Kingston University Publishing MA and also works on print and digital projects across the publishing and museum sectors. Her online training courses are used by a wide range of professionals, including global publishers. Follow her on Twitter at @mafunyane.

 

Textbook rental company Chegg announced last week it was hoping to raise $150m in an initial public offering (IPO) on the New York Stock Exchange. So what’s the inside track on the company that was most recently valued at $800m?

Growing out of an eBay-ish student marketplace site, Chegg launched its web-based textbook rental service in 2007, allowing US college students to place an order online and receive a physical book in the post (complete with a reply-paid label for its return at the end of the year). At a time when students and faculty were going to court over prohibitively high retail prices for textbooks, Chegg provided the perfect antidote. Plus, if you changed your mind and wanted to keep your textbook you could do that too, thanks to a built-in buy-back option. The service was soon available across the US and Chegg gained $2.2m venture capital funding on the back of their early success.

Anyone for burritos?

It wasn’t just Chegg’s easy-to-use service and low pricing that appealed to cash-strapped students. The company’s eye-catching, mouth-watering and eco-friendly marketing efforts included packaging their books in distinctive orange boxes, giving away coffee and free burritos, and planting a tree for every rental order it processed.

The company mascot Shelly (so named because she’s big, white, round and a little cracked – are you getting the ‘egg’ in Chegg yet?) may have been pretty hard to miss out on campus, but in order to drive actual sales Chegg also created a brand ambassador scheme. Thousands of students signed up to be ‘Chegg Champions’*, encouraging their classmates to use the service while becoming part of a community Chegg supported with online resources, marketing webinars and personal advice. Here’s one student’s view of life as a Chegg Champion:

http://www.youtube.com/watch?v=xR08v4rLB4M

Going mobile

Keen to reach more college students and make the rental process even easier, Chegg worked with Waterfall Mobile to develop a mobile channel, launching a price-checking SMS service in late 2009. Students could text a book title or ISBN to a short number and receive information on the title’s availability and cost – plus a link to a mobile site where their order could be confirmed. Lured by the promise of receiving discounts for future rentals, students also signed up to Chegg’s mobile subscription list.

Egged on by Chegg Champions who were incentivised by cash, the number of users of the text service grew from a couple of hundred to 20,000 within months. Chegg’s website was soon receiving ten times as many unique visitors as its closest competitor and, with estimated annual revenues of over $100m, the company appeared in the Wall Street Journal’s Next Big Thing: Top 50 Venture-Based Companies list.

The natural successor to the text service was a free app, which compared rental and retail book prices by title, author, ISBN or barcode, enabled direct ordering and provided shipment tracking. The service was ranked number one in Time magazine’s listing of Best Apps for Back to School in autumn 2010.

Students at its core

Of course, Chegg was established in the BEGG (Before Ebooks Got Going) era, so it’s no surprise it has diversified in the last couple of years. It now positions itself as a “network for students”, designed to “save students time, save them money and help them get smarter”. While other companies (most notably Amazon) have got in on the textbook rental racket, Chegg’s emphasis on students sets it apart.

Between August 2010 and October 2011 Chegg made five acquisitions to help achieve its vision of connecting students “to the people and tools needed to succeed throughout their high school and college career”. These included CourseRank (which helps students choose their modules while at college) and Cramster (an online homework help service). Chegg has also forged partnerships with brands keen to piggy-back on the company’s relationship with students, such as Red Bull and Microsoft.

Backing up its claim to put the student first, Chegg launched a device-agnostic eTextBook Reader last year and also joined forces with Cengage Learning, Macmillan Higher Education, Oxford University Press, SAGE and Wiley to deliver free digital content to Coursera learners.

Searching for profits

With over 600 employees, Chegg’s 2012 revenues were $213m, up almost 25% on the year before and more than five times what the company brought in in 2009. However, despite an engaging and trusted brand, a slick service satisfying a strong demand and an enviable reach in the market, Chegg has yet to make a profit.

What’s the problem? In short, the company is still buying print books from textbook publishers (who churn out regular new editions in order to stave off market erosion due to second-hand sales). And, as I said above, those textbooks cost a lot. When you realise, as Business Insider reports, Chegg spent over $40m buying textbooks in the first six months of this year that $213m income figure starts to look a little less impressive… However, the same publication is hopeful about the company’s long term potential, suggesting that as Chegg grows further it will ultimately turn a profit. Certainly its customer focus, smart marketing and focused growth strategies all indicate it’s doing things right. And if it could only stop buying print books the profits of all that hard work might appear sooner rather than later….

 

* Chegg Champions have since been renamed ‘Chegg Campus Crew’ – clearly a more appealing name for the students of the twenty-teens.

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