According to the Association of American Publishers, digital books accounted for 23% of publisher’s net revenues last year, up from 17% in 2011. Nearly ten years ago, digital books accounted for a meager 0.05% of book sales in the United States. The increasing use of tablets, smartphones, and e-readers is driving sales of e-books. While both fiction and nonfiction books for all demographics have begun to turn digital, textbooks are still widely published on paper, but digital textbooks represent a growing opportunity. Analysts estimate the country’s textbook market to be worth $10 billion this year with an 11% penetration of digital textbooks. They predict that by the year 2015, digital textbooks will account for more than half the education market.
Santa Clara, California–based Chegg is one company that is trying to make it big in digital textbooks. The company was founded in 2007 by Iowa university graduates Josh Carlson, Osman Rashid, and Aayush Phumbhra. They wanted to make textbook acquisition a less expensive proposition for students. Chegg was initially launched as a classified site, similar to Craigslist, for Iowa State University in 2005. It was a hyper-local classified directory that let students post ads free. Within two years, the company began offering a textbook rental service. Today its books are available to more than 4.5 million users spread over 6,400 higher education organizations in the country.
At Chegg, users sign up free to access various student-oriented services, including book rental and homework help. The company aspires to be the Facebook and LinkedIn equivalent of a student network. Chegg has a wide collection of required and non-required scholastic materials, course organization, and scheduling capabilities for students. It also offers information on colleges, universities, and scholarships to help students identify opportunities. Besides renting, Chegg is also a marketplace for students to buy and sell used and new textbooks.
But Chegg is best known for its rental service wherein students can rent both physical and digital textbooks. Chegg has a library of more than 100,000 e-textbook titles that can be accessed on its own e-textbook reader. The reader works on multiple platforms, including PC, Mac, tablets and smartphones. When used online, it lets students search, highlight, take notes and connect with Chegg’s homework help service. The online homework help offers access to more than 2.5 million step-by-step Chegg textbook solutions, and students can even ask experts questions for their assignments. Chegg’s offerings have helped it earn the name “the Netflix of textbooks.”
Chegg earns revenues by charging a rental fee of $10 to $174 for a textbook rental of up to 125 days. Financial details are largely unknown, but the company is estimated to have earned revenues of more than $200 million in 2011, recording growth of 38% over the year. Despite this high growth percentage, Chegg is estimated to be suffering losses.
Chegg is venture funded with investments of $195 million received from Gabriel Venture Partners, FLOODGATE, Primera Capital, Kleiner Perkins Caufield & Byers, Foundation Capital, Insight Venture Partners, Ace Limited, GSV Capital, Lucas Venture Group, and Manatt Venture Fund. Its most recent round of funding was held in March 2012 when it raised $25 million, pegging their valuation at $680 million.
According to market reports, Chegg is now looking for an IPO and has picked JP Morgan and Bank of America as its bankers for the event.