Chegg, the online education company, has filed a lawsuit against Google in a federal district court. The lawsuit alleges that Google's AI summaries of search results have negatively impacted Chegg's website traffic and revenue. Chegg claims that Google utilized its extensive collection of 135 million questions and answers in training its AI models, leading to unfair competition in search results. This legal battle emerges as Chegg faces financial challenges and explores strategic options with the assistance of Goldman Sachs.
The lawsuit highlights that Google's AI summaries are competing with content that publishers like Chegg offer in search results. A federal judge's ruling last August determined that Google holds a monopoly in the search market, reinforcing Chegg's concerns. The education company argues that Google's practices are detrimental to its business model because they leverage Chegg's proprietary content without compensation.
"supply our proprietary content in order to be included in Google's search function" – Nathan Schultz, President and CEO of Chegg
Chegg's financial performance has been under pressure, as demonstrated by a $6.1 million net loss on $143.5 million in fourth-quarter revenue, marking a 24% decline year over year. The company's stock experienced a 23% drop in extended trading, and its market valuation has decreased to less than $200 million. Despite these challenges, Chegg reported slightly higher-than-expected revenue of $143.5 million, surpassing analysts' estimates of $142.1 million.
Chegg's leadership is exploring various strategic alternatives, including potential acquisitions and going private. The company has engaged Goldman Sachs to assist in evaluating these options. As it navigates this uncertain landscape, Chegg remains focused on maintaining its position in the competitive online education sector.
Chegg's student subscription numbers also reflect a downward trend, with 3.6 million students subscribed in the fourth quarter, representing a 21% decrease. This decline underscores the challenges Chegg faces as it competes with other educational platforms and providers.
Google's AI Overviews, which are available in over 100 countries and reach more than one billion users, are at the center of this dispute. Chegg contends that these AI-generated summaries directly compete with its educational content, impacting user engagement and financial performance. In response to the lawsuit, a Google spokesperson emphasized the benefits of their services.
"Every day, Google sends billions of clicks to sites across the web, and AI Overviews send traffic to a greater diversity of sites." – Google spokesperson
Despite the partnership between Chegg and OpenAI, another major player in the AI space, Chegg views both OpenAI and Google as competitors. This dynamic further complicates Chegg's strategic positioning within the industry.
"reaping the financial benefits of Chegg's content without having to spend a dime" – Nathan Schultz, President and CEO of Chegg