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Education sector companies begin to notice impact of ChatGPT - shares tumble

Derek du Preez Profile picture for user ddpreez May 3, 2023
Connected learning platform Chegg has warned that ChatGPT has started to impact its business in the short term, which sent a wave of concern through the education sector.

(Pixabay )

A US-based online learning platform, Chegg, warned earlier this week that for the first time since the release of OpenAI’s ChatGPT, the company is seeing a spike in student interest in the large language model (LLM) tool and that it is having an impact on its customer growth. 

Chegg said during its earnings update this week that it is working with OpenAI to build out a generative AI tool to support its long term growth, but that in the short term ChatGPT is impacting its customer acquisition and revenue growth. 

The news saw Cheng’s share price fall by half on Tuesday and sent a ripple effect through the rest of the online education sector. Companies such as Pearson, Duolingo and Udemy all saw their share price fall off the back of Chegg’s comments. 

Since the launch of OpenAI’s ChatGPT to the public, organizations across a multitude of sectors have been pondering the implications of what generative AI will mean for their business models. Education in particular has been cited as a prime use case for the LLMs, given the interest in using the tool to both help teachers plan lessons and for students to collate information that they need. 

However, of course, ChatGPT has been found to produce inaccurate information and fears are being raised about students using the tool to cheat and/or plagiarize other people’s work. Last month diginomica spoke to Coursera, another online learning platform, about how it is moving quickly to adopt ChatGPT, in an attempt to stay ahead of the curve. 

Commenting on Chegg’s Q1 2023 results, which saw total net revenues of $187.6 million, a decrease of 7% year over year, CEO Dan Rosensweig, said: 

Chegg had a solid quarter, ending Q1 above our guidance on total revenue and adjusted EBITDA. As we shared with you during our last call, we believe that generative AI and large language models are going to affect society and business, both positively and negatively. At a faster pace than people are used to. Education is already being impacted. And over time, we believe that this will advantage Chegg.

In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth, and we were meeting expectations on new sign ups. However, since March, we saw a significant spike in student interest in ChatGPT. 

We now believe it's having an impact on our new customer growth. Fortunately, we continue to see very strong retention rates, suggesting that those students who already understand the value of Chegg continue to choose us and retain us at high rates. 

We are also expecting a positive recovery in enrollment trends, which historically would be good news for Chegg. Because it's too early to tell how this will play out. We believe that it's prudent to be more cautious with our forward outlook. Therefore, we intend to provide only the next quarter's guidance at this time

Adopt and adapt

Rosensweig said that AI technology is evolving at a rapid pace and that Chegg is embracing it “aggressively and immediately” - adding that the company has reorientated its focus to prioritize AI for the inclusion and incorporation into Chegg services. The first step of this is the introduction of CheggMate, in collaboration with OpenAI. The CEO said: 

CheggMate will harness the power of ChatGPT paired with our proprietary data and subject matter experts to make learning more personalized, adaptive, accurate, fast and effective, all in an easy to use and conversational manner. 

The combination of Chegg's experience over the last 13 years of improving student outcomes and our proprietary learning taxonomy to 150,000 subject matter experts in our network and the billions of pieces of unique learning content that Chegg owns, when coupled with the real time conversational nature of ChatGPT will establish CheggMate as a powerful and distinctive learning tool offered exclusively from Chegg.

Rosensweig added that he believes that the outcome of AI in education will be blending AI technology with human-based support to “build trust and ensure accuracy and relevancy”. And that the introduction of CheggMate will lead to an increase in the size of the market it services and strengthen the relationship with its users. 

But, most importantly, and it is a very good point, Rosensweig points to the data that Chegg holds as a distinct advantage. He said: 

Large language models are currently used horizontally, similar to search, but history suggests that over time focused and category leading verticals are where enduring value is created. CheggMate is being designed for learning and tailored to individual studies - individual students' learning style and needs. 

It will offer personalized assessments, practice tests and instant feedback along with Chegg's proprietary step-by-step solutions. We are moving very fast with a beta launch of CheggMate later this month. And as we test and iterate, we will expand access throughout the year.

Not everybody gets to leverage [AI] the same way, though. So let's be clear. The data set matters, the content matters, the learning taxonomy matters. This is going to come down to user experience, brand quality, brand reputation and your capital structure, which ours is superior to everybody else's.

My take

We all knew this was coming, but it’s quite something to see the speed at which OpenAI’s ChatGPT is impacting these companies. The tool is still in its infancy and it is calving share prices in half. Organizations need to adapt, and at pace, because if there’s one thing history tells us, it’s that new business models will emerge and it doesn’t take long for companies to be wiped out completely. But Rosensweig’s point about data is a good one - much of the future use of AI will revolve around trust. Not all tools will be created equal and Chegg should be emphasizing the integrity of its dataset. 

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