Chegg, a prominent online education platform known for its textbook rentals, homework help, and tutoring services, has been experiencing significant business challenges driven by the rise of artificial intelligence (AI).
The increasing adoption of AI-powered tools such as ChatGPT, coupled with other market dynamics, has adversely affected Chegg’s operations, revenues, and overall business model, Reuters news report said.
Decline in Web Traffic and Subscriber Base
Chegg has witnessed a notable decline in web traffic and a reduction in its subscriber base as students increasingly turn to AI-driven platforms for academic assistance. The company reported a 31 percent drop in subscribers in the first quarter of 2025, falling to 3.2 million from the previous period. This decline is directly linked to the proliferation of AI tools that offer similar or superior academic support services for free or at a lower cost than Chegg’s subscription services.
Moreover, the widespread use of AI chatbots and academic support tools has diminished Chegg’s relevance in the educational technology space, leading to a 30 percent decrease in its revenue to $121 million in the first quarter of 2025. Subscription services, the company’s core revenue stream, fell by nearly a third to $108 million during the same period.
Cost-Cutting Measures and Layoffs
To combat declining revenues, Chegg has implemented a comprehensive cost-cutting initiative, which includes laying off approximately 22 percent of its workforce, equivalent to 248 employees. The layoffs, scheduled for completion by the end of 2025, are part of a larger restructuring plan aimed at reducing operational expenses across marketing, product development, and general administrative costs.
The restructuring plan is expected to result in cost savings ranging from $45 million to $55 million in 2025 and $100 million to $110 million in 2026. However, the restructuring efforts will also incur charges of $34 million to $38 million, primarily in the second and third quarters of 2025.
Legal Challenges and Increased Competition
Chegg has also taken legal action against Google, alleging that the tech giant’s AI-generated overviews are eroding demand for Chegg’s original educational content. In February 2025, Chegg filed a lawsuit claiming that Google’s AI tools are undermining the competitive landscape by keeping users within its search ecosystem and diverting web traffic away from Chegg’s platform.
Simultaneously, other AI companies, including OpenAI and Anthropic, are offering free access to AI tools and academic resources, further intensifying competition in the educational support market. These companies have gained significant traction among students, who now have access to sophisticated AI tools that can answer academic questions, provide detailed explanations, and even generate academic content.
Strategic Shifts and Future Outlook
In response to these challenges, Chegg is recalibrating its strategic focus. The company plans to streamline its operations, reduce non-core expenses, and explore new revenue streams to offset declining subscription revenues. However, with AI tools rapidly evolving and gaining widespread acceptance among students and educators, Chegg faces an uphill battle in maintaining its market position and relevance.
InfotechLead.com News Desk
