Chegg
Encyclopedia
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. 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.
but for college campuses where "students would buy and sell everything from used mattresses to textbooks." The plan was to make money from advertising but their biggest seller was used textbooks. 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. A second estimate was $1000 per year, with signs that the prices of books were increasing faster than inflation
. Some college bookstores would offer to buy back the used books for a fraction of their original price. The founders noticed how people were becoming accustomed to renting things online because of services like Netflix.
In 2007, Rashid and Phumbhra repositioned the company along the lines of Netflix
as a way to rent textbooks to students. 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. 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. 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. But savings varied from book to book. Round-trip shipping costs, paid by Chegg, average about $4 per book. The simplicity of the model helped the marketing; investor Ted Schlein said "when you describe this idea to someone, they immediately get it."
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. The idea clicked. In 2008, the firm hired the former chief executive of Match.com
Jim Safka to run the firm. In 2008, revenues were about $10 million; in 2009, revenues in January alone were $10 million, according to Safka. The firm has raised additional capital from venture capitalists. In January 2009, USA Today
reporter Julie Schmit described Chegg as a "leader" in the "burgeoning arena of college textbook rentals." The firm had 55 customer service reps at that point. The firm employs software engineers to improve its website. 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." It has a cat named "Mongo."
In 2010, the firm rented textbooks to students on 4,000 college campuses, according to Rashid, 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. 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.
.
The U.S. Congress
set aside $10 million to encourage college bookstores to rent textbooks, so bookstores are starting up rental programs as well. Follett Higher Education Group started up a rental program in 2009.
Wall Street Journal reporter Peter King compared different options for textbook rentals in April, 2009. 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." King compared offerings related to an expensive accounting textbook. 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. 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. Chegg was the "most expensive rental" and charged sales tax. 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. In all cases, books had to be returned by the deadline to make the cost savings worthwhile. 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. In a test using a different book, Chegg had the lowest price, while other firms did not even carry the book. Textbooks.com, according to the report, does not offer buyback chances to all books it sells.
funding. Investors include Insight Venture Partners
, Pinnacle Ventures, and TriplePoint Capital.
, 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. 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. 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. 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.
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.
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. Rashid and Phumbhra decided to switch the "textbookflix" name to "Chegg.com" in December 2007. The firm has enjoyed strong growth. According to a company spokesperson, Chegg rented its two millionth book in 2010.
Textbook
A textbook or coursebook is a manual of instruction in any branch of study. Textbooks are produced according to the demands of educational institutions...
rental company in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
based in Santa Clara
Santa Clara, California
Santa Clara , founded in 1777 and incorporated in 1852, is a city in Santa Clara County, in the U.S. state of California. The city is the site of the eighth of 21 California missions, Mission Santa Clara de Asís, and was named after the mission. The Mission and Mission Gardens are located on the...
, CA
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
, 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. 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.
Business model
The first business model didn't work; in 2003, the founders modeled the company as a quasi CraigslistCraigslist
Craigslist is a centralized network of online communities featuring free online classified advertisements, with sections devoted to jobs, housing, personals, for sale, services, community, gigs, résumés, and discussion forums....
but for college campuses where "students would buy and sell everything from used mattresses to textbooks." The plan was to make money from advertising but their biggest seller was used textbooks. 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. A second estimate was $1000 per year, with signs that the prices of books were increasing faster than inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
. Some college bookstores would offer to buy back the used books for a fraction of their original price. The founders noticed how people were becoming accustomed to renting things online because of services like Netflix.
In 2007, Rashid and Phumbhra repositioned the company along the lines of Netflix
Netflix
Netflix, Inc., is an American provider of on-demand internet streaming media in the United States, Canada, and Latin America and flat rate DVD-by-mail in the United States. The company was established in 1997 and is headquartered in Los Gatos, California...
as a way to rent textbooks to students. 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. 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. 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. But savings varied from book to book. Round-trip shipping costs, paid by Chegg, average about $4 per book. The simplicity of the model helped the marketing; investor Ted Schlein said "when you describe this idea to someone, they immediately get it."
Stories in campus newspapers helped spread the idea. One senior at Arizona State University
Arizona State University
Arizona State University is a public research university located in the Phoenix Metropolitan Area of the State of Arizona...
calculated he would spend about half as much renting books than buying them for one semester. The idea clicked. In 2008, the firm hired the former chief executive of Match.com
Match.com
Match.com is an online dating company which reportedly has more than 20 million members, made up of a 49/51 male/female ratio, and Web sites serving 25 countries in more than 8 different languages. Its headquarters are in Dallas, Texas and the company also has offices in West Hollywood, Tokyo, Rio,...
Jim Safka to run the firm. In 2008, revenues were about $10 million; in 2009, revenues in January alone were $10 million, according to Safka. The firm has raised additional capital from venture capitalists. In January 2009, USA Today
USA Today
USA Today is a national American daily newspaper published by the Gannett Company. It was founded by Al Neuharth. The newspaper vies with The Wall Street Journal for the position of having the widest circulation of any newspaper in the United States, something it previously held since 2003...
reporter Julie Schmit described Chegg as a "leader" in the "burgeoning arena of college textbook rentals." The firm had 55 customer service reps at that point. The firm employs software engineers to improve its website. The four-story office building in Santa Clara
Santa Clara, California
Santa Clara , founded in 1777 and incorporated in 1852, is a city in Santa Clara County, in the U.S. state of California. The city is the site of the eighth of 21 California missions, Mission Santa Clara de Asís, and was named after the mission. The Mission and Mission Gardens are located on the...
"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." It has a cat named "Mongo."
In 2010, the firm rented textbooks to students on 4,000 college campuses, according to Rashid, 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. 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.
Competitors
The college textbook market has different competitors. While the main source of books for college students is college bookstores, there are increasingly options. 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. 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 PressAssociated Press
The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...
.
The U.S. Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
set aside $10 million to encourage college bookstores to rent textbooks, so bookstores are starting up rental programs as well. Follett Higher Education Group started up a rental program in 2009.
Wall Street Journal reporter Peter King compared different options for textbook rentals in April, 2009. 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." King compared offerings related to an expensive accounting textbook. 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. 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. Chegg was the "most expensive rental" and charged sales tax. 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. In all cases, books had to be returned by the deadline to make the cost savings worthwhile. 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. In a test using a different book, Chegg had the lowest price, while other firms did not even carry the book. Textbooks.com, according to the report, does not offer buyback chances to all books it sells.
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. Another suggests total equity financing since inception, as of January 2010, is in the range of $150 million, primarily from venture capitalVenture capital
Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...
funding. Investors include Insight Venture Partners
Insight Venture Partners
Insight Venture Partners is a New York-based private equity and venture capital firm founded in 1995 by Jeff Horing and Jerry Murdock. The firm focuses exclusively on software and Internet-enabled businesses and currently has a capital base of approximately $5 billion.The firm’s Executive Advisory...
, Pinnacle Ventures, and TriplePoint Capital.
Services
Chegg ships books from a warehouse in ShepherdsvilleShepherdsville, Kentucky
As of the census of 2000, there were 8,334 people, 3,177 households, and 2,363 families residing in the city. The population density was 791.3 people per square mile . There were 3,402 housing units at an average density of 323.0 per square mile...
, KY
Kentucky
The Commonwealth of Kentucky is a state located in the East Central United States of America. As classified by the United States Census Bureau, Kentucky is a Southern state, more specifically in the East South Central region. Kentucky is one of four U.S. states constituted as a commonwealth...
, which is close to a UPS
United Parcel Service
United Parcel Service, Inc. , typically referred to by the acronym UPS, is a package delivery company. Headquartered in Sandy Springs, Georgia, United States, UPS delivers more than 15 million packages a day to 6.1 million customers in more than 220 countries and territories around the...
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. 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. 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. 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 deforestationDeforestation
Deforestation is the removal of a forest or stand of trees where the land is thereafter converted to a nonforest use. Examples of deforestation include conversion of forestland to farms, ranches, or urban use....
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.
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 UniversityIowa State University
Iowa State University of Science and Technology, more commonly known as Iowa State University , is a public land-grant and space-grant research university located in Ames, Iowa, United States. Iowa State has produced astronauts, scientists, and Nobel and Pulitzer Prize winners, along with a host of...
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
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
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. Rashid and Phumbhra decided to switch the "textbookflix" name to "Chegg.com" in December 2007. The firm has enjoyed strong growth. According to a company spokesperson, Chegg rented its two millionth book in 2010.