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It has been, ahem, a few years since I graduated from college, but I can still remember how much I loathed buying my textbooks.  Even back then (before there was an Internet), you just knew you were being taking advantage of- by the book publishers, the bookstore (Barnes and Noble), the school, and the professors, who always seemed to have their 5 books on the syllabus.  Then, to top it all off, you actually had to physically go to the bookstore, to walk around picking out your books as you checked your list, all while slowly developing a hernia from the 30 pounds of paper in your basket.

You knew there had to be a better way and you would do anything to avoid that entire situation.

So that is one reason I am madly in love with Chegg.  Chegg is a textbook rental service; a Netflix for college textbooks.  The concept is simple and it is in line with my fascination and interest with all things rental.  A student can search the catalog of thousands of titles, rent a textbook for about 50% of the cost of buying it, check it out for a semester/quarter/60 days, and sell their purchased textbooks for extra beer money.  As a service, it is a true win-win-win: save kids and parents money, save the environment, company makes money.  Reports are that hernias are way down on college campuses as well.

Chegg is now offers its services to more than 6,400 universities and community colleges across the country and it recently raised a $100MM warchest to own this growing market.

Here are some of the main reasons I think Chegg has been successful and why I love the business:

  1. Capital Efficiency:  The company raised just a $2.7MM Series A from my friend Mike Maples and $4.7MM Series B before proving out its model.
  2. Compressed Timeframe:  Although the company morphed from its original conception, the team proved out the business in 18 – 24 months.
  3. Test Market:  The company can test concepts in discernable communities with limited risk and capital outlay.  At the formation stage, the company could limit the number of books it needed.  As it grows, it can roll out new services quickly after proving out the concept at say, Florida State.
  4. Marketing:  There is nothing as viral as a college campus.  I’ll just let that one hang out there.
  5. Business Model:  Saving people real money and getting them to pay you is a tough trick.  Added bonus of being able to sell advertisers for in-box offers.
  6. Built-In Market:  Each year a new crop of customers arrives on campus.  They come to you.
  7. Manageable Inventory:  Like Netflix, Chegg will ultimately need to be excellent at pick, pack, and shipping.  Operations will be its competitive advantage.  And, while books are heavier than DVD’s, it helps that the company can focus initially on a limited universe of books.
  8. Scalable:  Once the initial model and infrastructure is in place, adding new schools is a marginal cost.  And there is nothing stopping Chegg from offering other books, like Amazon, for rent.
  9. Customer Service:  30-Day refunds, free return shipping, tree planting.

There are a lot of systemic reasons why renting may be a winner-take-all market.  It is smart of the company to raise as much as they did to eviscerate the competition.

As a business based on everything that is great about the Internet, Chegg gets an “A”.  And I am sure I am not the first moron to make that joke.

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2 thoughts on “I (Heart) Chegg

  1. Hi Steven,

    I’m a little confused about why Chegg is considered a “capital efficient” business. It seems to me that a textbook business, where you have to raise lots of money to actually hold the inventory of books – is at it’s core not capital efficient when compared to spaces like software or online marketplaces.

    Or are you suggesting that relative to the size of the industry $7.4M is not a lot to prove out such a potentially lucrative model?

    thanks

    -simon

  2. Pingback: Paradigm Breakers « The World According To Carp

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