It was just another day when Chegg, an American education technology company, witnessed a sudden drop in its stock price. It was the kind of situation that many investors dread â?? a stock plummeting without any warning.
What happened next was a nail-biting experience for the investors and Chegg's management team as well. The company's stock price tanked by more than 18%, and the market cap plummeted by over $1 billion.
What Went Wrong?
The sudden dip in the stock price was attributed to ChatGPT, a startup that gained prominence for providing free online tutoring services. ChatGPT's idea was simple â?? connect students with subject matter experts (SMEs) in real-time.
The company relied on an AI-based technology that could predict what a student wanted to learn by analyzing their previous queries. It allowed the company to connect students with the right SMEs in seconds.
Chegg's management team was well aware of ChatGPT's existence, but they never considered it to be a significant threat. However, the sudden loss of over 20% of the projected revenue in the next quarter came as a shock to them.
ChatGPT was gaining traction in the education industry and was becoming a go-to platform for students who wanted personalized assistance at affordable rates.
Real-life Examples
The story of Chegg and ChatGPT is not unique. It's a classic example of how fast a market can change and how startups can disrupt established businesses. Uber disrupted the taxi industry, Airbnb disrupted the hotel industry, and now ChatGPT is disrupting the online tutoring industry.
Another example is Kodak, a company that failed to recognize the potential of digital photography and went bankrupt. The digital revolution was taking over the photography industry, and Kodak's management team failed to see that.
What Can We Learn From This?
There are a few key lessons that we can learn from the Chegg-ChatGPT debacle:
- Pay attention to the competition, even if they seem small
- Don't dismiss new technology or business models
- Be prepared to adapt to changes in the market
Conclusion
Chegg's stock plummeted because the company failed to recognize a potential disruptor in the market. The lesson to be learned here is that no business is too big to fail, and innovation can come from unexpected places.
Akash Mittal Tech Article
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