Chegg

Chegg
Chegg, Inc.
Type Private
Industry Electronic Commerce
Founded 2005
Headquarters Santa Clara, CA
Key people Osman Rashid, Chairman and Co-Founder
Aayush Phumbhra, SVP and Co-Founder
Products Online textbook rental
Website http://www.chegg.com/

Chegg or Chegg.com is an online textbook rental company in the United States based in Santa Clara, CA, which was created in 2001 by three Iowa State University students. Students rent textbooks typically by ordering online, and return books after the semester. It was founded by entrepreneurs Osman Rashid and Aayush Phumbhra.[1] The name Chegg is a contraction of the words chicken and egg, based on the founders' experience after graduating from college: they couldn't land a job without experience, but couldn't get experience without a job, or a chicken and egg type quandary.[2]

Contents

Business model

The first business model didn't work; in 2003, the founders modeled the company as a quasi Craigslist but for college campuses where "students would buy and sell everything from used mattresses to textbooks."[1] The plan was to make money from advertising[1] but their biggest seller was used textbooks.[1] The problem faced by most college students is that textbooks are expensive, often priced higher than $100 per book; students usually didn't need the heavy books after each semester, but there was no good way to sell them. One estimate was the college students spent, on average, $667 annually on books in 2009.[3] A second estimate was $1000 per year,[4] with signs that the prices of books were increasing faster than inflation.[4] Some college bookstores would offer to buy back the used books for a fraction of their original price.[1] The founders noticed how people were becoming accustomed to renting things online because of services like Netflix.[5]

In 2007, Rashid and Phumbhra repositioned the company along the lines of Netflix as a way to rent textbooks to students.[1][6] But there was little money initially. When an order came in, Rashid would buy the book using a credit card and have it shipped to the student; automation came later.[7] At one point, with a huge volume of traffic on his credit card, his credit card firm suspected fraud, but Rashid was able to persuade the credit supplier to extend credit using multiple numbers of cards.[7] Books normally rent around half the retail price; for example, a macroeconomics textbook priced at $122 at a college bookstore would rent for $65 at Chegg.[8] But savings varied from book to book. Round-trip shipping costs, paid by Chegg, average about $4 per book.[8] The simplicity of the model helped the marketing; investor Ted Schlein said "when you describe this idea to someone, they immediately get it."[9]

Stories in campus newspapers helped spread the idea. One senior at Arizona State University calculated he would spend about half as much renting books than buying them for one semester.[2] The idea clicked. In 2008, the firm hired the former chief executive of Match.com Jim Safka to run the firm.[10] In 2008, revenues were about $10 million; in 2009, revenues in January alone were $10 million, according to Safka.[10] The firm has raised additional capital from venture capitalists.[11] In January 2009, USA Today reporter Julie Schmit described Chegg as a "leader" in the "burgeoning arena of college textbook rentals."[12] The firm had 55 customer service reps at that point.[13] The firm employs software engineers to improve its website.[13] The four-story office building in Santa Clara "hums with the sounds of clicking computer keys, ringing phones and snippets of conversations" and has "trash bins burst with soft-drink cans, paper plates and discarded snacks."[13] It has a cat named "Mongo."[13]

In 2010, the firm rented textbooks to students on 4,000 college campuses, according to Rashid,[14] although another estimate was that it was over 5,000. According to a company estimate, there were 4.2 million titles available to students in the Chegg online catalog. As of March 2011 Chegg has rented textbooks at more than 6400 college campuses.[15] A key to making the model work is extending the lifetime usability of textbooks. Since many textbooks become out-of-date quickly, often replaced with new versions, a key to profitability will be how long a book can be re-rented, or re-cycled; in the market for rental cars, for example, firms such as Hertz and Avis buy new cars, but sell them after about a year or two of service. But what is the useful life of a rented book? "The market can be tricky," said market analyst Kathy Mickey, because professors must use the same books for several semesters in order for book-rental companies to make money on the programs.[16]

Competitors

The college textbook market has different competitors. While the main source of books for college students is college bookstores, there are increasingly options.[6] Bookseller Barnes and Noble, which owns 636 college bookstores, began its own textbook rental program in January 2010 largely patterned along the lines of Chegg's service. One report is that Barnes & Noble will rent books at about 42% of their original price, on average.[3] Students can rent textbooks from their college bookstore or online, with orders shipped to their college bookstore for pickup, according to one report by the Associated Press.[3]

The U.S. Congress set aside $10 million to encourage college bookstores to rent textbooks,[16] so bookstores are starting up rental programs as well. Follett Higher Education Group started up a rental program in 2009.[16]

Wall Street Journal reporter Peter King compared different options for textbook rentals in April, 2009.[17] He compared firms such as Book Renter, Campus Book Rentals, Chegg, and also Textbooks.com which sells textbooks online but offers a guaranteed buyback later making these books "quasi-rentals."[17] King compared offerings related to an expensive accounting textbook.[18] King noted some confusion with book packages, with return labels different from the firms which had been ordered from; it required matching the shipping tracking orders with the email invoices to figure out that the original sources were Campus Book Rentals and Chegg.[19] A Chegg spokesperson said the firm sometimes uses "strategic partners" if a particular book isn't in its warehouse; but the reporter wondered whether the use of third-party suppliers might cause confusion when books needed to be returned at the end of the semester.[20] Chegg was the "most expensive rental" and charged sales tax.[20] The least expensive alternative was Textbooks.com, although this firm required an upfront expense of $117.50; King surmised the upfront payout would mean college students had less money available during the semester.[20] In all cases, books had to be returned by the deadline to make the cost savings worthwhile.[21] But the online alternatives were substantially better than buying the book from the college bookstore, and selling it back to the bookstore at the end of the semester.[22] In a test using a different book, Chegg had the lowest price, while other firms did not even carry the book.[23] Textbooks.com, according to the report, does not offer buyback chances to all books it sells.[23]

Finances

There are reports that Chegg is well financed. One report is that the firm first received $2.2 million in financing in January 2007. In August 2008, it raised $7 million from Gabriel Venture Partners, Mike Maples and Primera Capital. One source suggests the firm raised $57 million in November 2009.[24] Another suggests total equity financing since inception, as of January 2010, is in the range of $150 million, primarily from venture capital funding.[25] Investors include Insight Venture Partners, Pinnacle Ventures, and TriplePoint Capital.[25]

Services

Chegg ships books from a warehouse in Shepherdsville, KY, which is close to a UPS facility. Students order books by entering the ISBN, title or author on the Chegg website. Textbooks can be rented by the term such as a quarter or semester.[26] Textbooks are mailed in branded bright orange boxes. At the end of the term, students receive, by email, a pre-paid postage barcode which they print and affix to any box.[26] Students must pay late fees if the book is not postmarked by the deadline. Chegg permits "reasonable highlighting" in books but doesn't permit writing in them.[27] The company offers a 21 day money-back guarantee for "any reason". Further, Chegg has a program of buying used textbooks from students to increase inventory. Chegg also sells books that may not be rental candidates because of student kits or other consumables.

Green marketing promotion

Chegg promotes its service, in part, on the basis that it helps prevent deforestation since fewer trees are being cut down to generate paper for books. To emphasize the point, Chegg has an arrangement with American Forests' Global Releaf Program such that every book rented or sold means that one tree is planted. The firm claims that over five million trees have been planted.[28][29]

History

In 2001, Josh Carlson, Mike Seager and Mark Fiddelke created the precursor to the business called Cheggpost.com, a Craigslist-type classified service for college students at Iowa State University. Aayush Phumbhra, who attended Iowa State University and was an avid Cheggpost.com user, approached Carlson in late 2003 with the idea of taking the company national. Phumbhra mentioned the service to a friend, Osman Rashid, who saw potential in the idea and joined as chief executive officer to help fund the company in 2005 and formally launched Chegg, Inc., was incorporated in August. Carlson remained until February 2006 and then left to pursue other interests. In April 2006, Chegg found some initial investors including Sam Spadafora, Mike Maples and others. The co-founders quit their regular jobs to focus on Chegg full-time. They tested services; they acquired three college classifieds businesses; they publicized Chegg via campus campaigns and word-of-mouth. In summer 2007 the firm launched "textbookflix.com" which used the textbook rental model.[30] Rashid and Phumbhra decided to switch the "textbookflix" name to "Chegg.com" in December 2007. The firm has enjoyed strong growth.[31] According to a company spokesperson, Chegg rented its two millionth book in 2010.[32]

See also

External links

References

  1. ^ a b c d e f Miguel Helft (July 4, 2009). "We Rent Movies, So Why Not Textbooks?". The New York Times. http://www.nytimes.com/2009/07/05/business/05ping.html. Retrieved 2010-01-26. 
  2. ^ a b Miguel Helft (July 4, 2009). "We Rent Movies, So Why Not Textbooks?". The New York Times. http://www.nytimes.com/2009/07/05/business/05ping.html. Retrieved 2010-01-26. "... calculated that his bill for books that semester would have been $334 with Chegg, far less than the $657 he paid. ..." 
  3. ^ a b c Associated Press (2010-01-11). "Barnes & Noble starts textbook rentals". San Jose Mercury News. http://www.mercurynews.com/education/ci_14165487?source=rss. Retrieved 2010-01-26. "... Bookseller Barnes & Noble is launching a textbook rental program for college students, making it the newest entrant in a growing field. ..." 
  4. ^ a b Peter King (April 23, 2009). "A Textbook Case of Renting Books". Wall Street Journal. http://online.wsj.com/article/SB124045232885846381.html. Retrieved 2010-01-26. 
  5. ^ Miguel Helft (July 4, 2009). "We Rent Movies, So Why Not Textbooks?". The New York Times. http://www.nytimes.com/2009/07/05/business/05ping.html. Retrieved 2010-01-26. "... the inspiration was Netflix. ..." 
  6. ^ a b Julie Schmit (2009-01-12). "Chegg CEO Rashid applies Netflix concept to textbooks". USA Today. http://www.usatoday.com/money/companies/management/entre/2009-01-11-chegg-rashid_N.htm. Retrieved 2010-01-26. 
  7. ^ a b Miguel Helft (July 4, 2009). "We Rent Movies, So Why Not Textbooks?". The New York Times. http://www.nytimes.com/2009/07/05/business/05ping.html. Retrieved 2010-01-26. "... They would buy the book using Mr. Rashid’s American Express card and have it shipped to the student. ..." 
  8. ^ a b Miguel Helft (July 4, 2009). "We Rent Movies, So Why Not Textbooks?". The New York Times. http://www.nytimes.com/2009/07/05/business/05ping.html. Retrieved 2010-01-26. "... how many times a given book can be rented. The savings can vary from book to book. ..." 
  9. ^ Julie Schmit (2009-01-12). "Chegg CEO Rashid applies Netflix concept to textbooks". USA Today. http://www.usatoday.com/money/companies/management/entre/2009-01-11-chegg-rashid_N.htm. Retrieved 2010-01-26. "The simplicity of the idea..." 
  10. ^ a b Miguel Helft (July 4, 2009). "We Rent Movies, So Why Not Textbooks?". The New York Times. http://www.nytimes.com/2009/07/05/business/05ping.html. Retrieved 2010-01-26. "... Jim Safka, a former chief executive of Match.com and Ask.com who was recently recruited to run Chegg, ..." 
  11. ^ Miguel Helft (July 4, 2009). "We Rent Movies, So Why Not Textbooks?". The New York Times. http://www.nytimes.com/2009/07/05/business/05ping.html. Retrieved 2010-01-26. "Based on that kind of growth, the company was able to raise $25 million in December ..." 
  12. ^ Julie Schmit (2009-01-12). "Chegg CEO Rashid applies Netflix concept to textbooks". USA Today. http://www.usatoday.com/money/companies/management/entre/2009-01-11-chegg-rashid_N.htm. Retrieved 2010-01-26. "The company he co-founded, Chegg, is a leader in the burgeoning arena of college textbook rentals. ..." 
  13. ^ a b c d Julie Schmit (2009-01-12). "Chegg CEO Rashid applies Netflix concept to textbooks". USA Today. http://www.usatoday.com/money/companies/management/entre/2009-01-11-chegg-rashid_N.htm. Retrieved 2010-01-26. "Chegg is headquartered ... Trash bins burst with soft-drink cans, paper plates and discarded snacks. ... There's even a cat: Mongo." 
  14. ^ Julie Schmit (2009-01-12). "Chegg CEO Rashid applies Netflix concept to textbooks". USA Today. http://www.usatoday.com/money/companies/management/entre/2009-01-11-chegg-rashid_N.htm. Retrieved 2010-01-26. "The 18-month-old service has hundreds of thousands of customers on 4,000 U.S. campuses, says Rashid, 38. ..." 
  15. ^ "Textbook Renter Chegg Moves Beyond Books". Mashable. March 24, 2011. http://mashable.com/2011/03/24/chegg-social/. 
  16. ^ a b c Associated Press (2010-01-11). "Barnes & Noble starts textbook rentals". San Jose Mercury News. http://www.mercurynews.com/education/ci_14165487?source=rss. Retrieved 2010-01-26. "... because Congress last year set aside $10 million to provide grants for college bookstores to start rental programs..." 
  17. ^ a b Peter King (April 23, 2009). "A Textbook Case of Renting Books". Wall Street Journal. http://online.wsj.com/article/SB124045232885846381.html. Retrieved 2010-01-26. "To see how the process works, we ordered textbooks from three rental companies: Book Renter, Campus Book Rentals and Chegg; and one textbook seller, Textbooks.com, which doesn't rent books, but offers guaranteed buybacks on some texts, making those books a quasi-rental." 
  18. ^ Peter King (April 23, 2009). "A Textbook Case of Renting Books". Wall Street Journal. http://online.wsj.com/article/SB124045232885846381.html. Retrieved 2010-01-26. "We decided to check prices and availability ..." 
  19. ^ Peter King (April 23, 2009). "A Textbook Case of Renting Books". Wall Street Journal. http://online.wsj.com/article/SB124045232885846381.html. Retrieved 2010-01-26. "... Only by matching the shipping tracking numbers with our email invoices could we figure out these were the books we ordered from Campus Book Rentals and Chegg." 
  20. ^ a b c Peter King (April 23, 2009). "A Textbook Case of Renting Books". Wall Street Journal. http://online.wsj.com/article/SB124045232885846381.html. Retrieved 2010-01-26. "A Chegg spokeswoman later told us the company sometimes uses "strategic partners" if the book isn't in its warehouse. ..." 
  21. ^ Peter King (April 23, 2009). "A Textbook Case of Renting Books". Wall Street Journal. http://online.wsj.com/article/SB124045232885846381.html. Retrieved 2010-01-26. "With book seller Textbooks.com, the book has to be returned by a set deadline to get the guaranteed buyback. ..." 
  22. ^ Peter King (April 23, 2009). "A Textbook Case of Renting Books". Wall Street Journal. http://online.wsj.com/article/SB124045232885846381.html. Retrieved 2010-01-26. "In contrast, buying a used copy at the ASU bookstore costs $125.25. Subtracting the bookstore's estimated buyback price of $55 would leave us with a net cost of $70.25." 
  23. ^ a b Peter King (April 23, 2009). "A Textbook Case of Renting Books". Wall Street Journal. http://online.wsj.com/article/SB124045232885846381.html. Retrieved 2010-01-26. "... We did a spot check of prices for the "Norton Field Guide to Writing" (list price, new: $48), which is widely assigned for English composition courses. Chegg would rent it for $9.99 for 60 days. ..." 
  24. ^ "Book rental company Chegg raises $57M". San Jose Business Journal. November 19, 2009. http://sanjose.bizjournals.com/sanjose/stories/2009/11/16/daily78.html. Retrieved 2010-01-26. "Online textbook rental company Chegg.com Inc. said Thursday it raised $57 million in a fourth round of funding. ..." 
  25. ^ a b PR Newswire (2010-01-26). "Chegg.com Secures $112 Million to Fund Explosive Growth in Online Textbook Rentals". Reuters. http://www.reuters.com/article/idUS196206+19-Nov-2009+PRN20091119. Retrieved 2010-01-26. "Chegg.com ... announced today that it has successfully closed $57 million Series D equity funding,..." 
  26. ^ a b Iowa State Daily
  27. ^ USA Today
  28. ^ Chegg.com
  29. ^ Ecofriendly
  30. ^ Newsweek
  31. ^ Bloomberg
  32. ^ Fox

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