Chegg, Inc. (CHGG): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at Chegg, Inc. right now, and honestly, the landscape has defintely shifted since last year; the core academic business is under siege from generative AI, which slashed non-subscriber traffic by a staggering 49% in January 2025 alone, and the Q3 2025 Net Revenue drop of 43% year-over-year tells you how fierce the fight is. My two decades analyzing tech shifts tells me this isn't just a minor headwind-it's a fundamental change where the threat of substitutes, mainly LLMs, is the dominant force, forcing the company into a high-stakes pivot toward B2B Skilling. Before you decide on your next move regarding Chegg, Inc., you need to see the full breakdown of how this disruption is reshaping the power dynamics across all five of Porter's forces, from supplier leverage to customer churn, which we detail below.

Chegg, Inc. (CHGG) - Porter's Five Forces: Bargaining power of suppliers

You're analyzing Chegg, Inc.'s (CHGG) supplier power as of late 2025, and honestly, the picture is one of significant internal leverage gain, largely driven by technology adoption and aggressive cost management. The traditional power held by subject matter experts (SMEs) who created proprietary content has been substantially eroded. Chegg has reported that its integration of artificial intelligence has slashed the cost of generating new content by over 70%. This technological leap means Chegg relies far less on paying SMEs for every new solution or explanation, shifting the dynamic in its favor.

Content providers, like traditional textbook publishers or authors whose value was tied to physical or static digital assets, find their leverage diminishing. The market has moved toward instant, AI-generated digital solutions, which Chegg is now heavily invested in, even suing Google over traffic diversion related to AI search summaries. To be fair, this shift means Chegg can now monetize its existing content library via licensing deals, bringing in $7 million in Q2 2025 and $4 million in Q1 2025 from AI companies alone.

The company's aggressive internal restructuring is a clear move to solidify this cost advantage and reduce reliance on any high-cost external inputs. They are on track to realize non-GAAP expense reductions between $165-$175 million in 2025. This is a massive push for cost control, especially when you look at the scale of their 2024 spending base. Here's the quick math on how these savings compare to the prior year's total operating expenses:

What this estimate hides is the one-time cost of the restructuring itself, but the resulting lower fixed cost base definitely strengthens Chegg's negotiating position with remaining traditional suppliers. Also, the cumulative savings from restructuring initiatives are projected to reach up to $175 million in 2025.

However, the pivot to a B2B Skilling focus introduces a new supplier dynamic. This new focus, which is expected to generate approximately $70 million in revenue for FY 2025, requires specialized instructors for workplace readiness and upskilling courses. This niche expertise could increase the bargaining power of these specialized instructors in the short term, as Chegg builds out this new, high-growth segment, which is targeted to grow at double-digit rates in 2026.

The supplier power landscape for Chegg, Inc. can be summarized by these key shifts:

• AI reduced content creation costs by over 70%.
• Restructuring targets $165-$175 million in 2025 non-GAAP expense cuts.
• The Skilling business is projected to generate about $70 million in 2025 revenue.
• The shift to B2B Skilling creates demand for niche instructors.

Finance: draft the Q4 2025 cash flow impact from the latest restructuring charges by Friday.

Chegg, Inc. (CHGG) - Porter's Five Forces: Bargaining power of customers

You're looking at a customer base where the power is definitely tilted in their favor right now. The core issue for Chegg, Inc. is that the perceived value proposition is easily matched or beaten by alternatives, and the cost to leave is practically zero.

Customer base is highly price-sensitive and faces near-zero switching costs to alternatives. When students evaluate their monthly spend, Chegg, Inc.'s offering is competing against both paid rivals and a growing sea of free, AI-driven solutions. If a student finds a better deal or a free tool that works, they can cancel their Chegg subscription instantly. This low barrier to exit keeps pricing pressure high.

Subscription services saw a significant decline to 2.6 million subscribers in Q2 2025. This drop represents a 40% contraction year-over-year from the prior period, showing just how quickly customers are walking away from the core offering. The Subscription Services revenue for that quarter was $89.7 million.

Students can easily access free, high-quality educational content elsewhere. The rise of generative AI tools has fundamentally changed the competitive landscape, offering instant, customized answers that directly substitute for Chegg, Inc.'s step-by-step solutions. This external pressure is the primary driver behind the subscriber losses reported throughout 2025.

The average monthly subscription is a low-cost item, around $14.95, but churn is still a major issue. Even at this relatively low price point, the perceived utility is declining. For instance, the basic Chegg Study plan is listed around $15.95 per month, while a 3-month commitment can bring the effective monthly cost down to about $13.30.

Here's the quick math on the core subscription base as of Q2 2025:

Despite the massive subscriber outflow, management noted that for the customers who stayed, retention and ARPU (Average Revenue Per User) actually increased year-over-year in Q2 2025. This suggests that while acquisition is failing due to external factors, the remaining base finds value.

The bargaining power is amplified by the availability of substitutes, which can be summarized by looking at the competitive landscape:

• Free AI study tools directly substitute for solutions.
• Rival homework help platforms like Course Hero offer comparable services.
• The basic plan limits Q&A posts to 20 per month.
• Chegg Writing service is separately priced around $9.95 per month.

If onboarding takes 14+ days, churn risk rises, especially when students are under immediate exam pressure and turn to faster, free alternatives. Finance: draft 13-week cash view by Friday.

Chegg, Inc. (CHGG) - Porter's Five Forces: Competitive rivalry

You're looking at a company in the crosshairs of a massive technological shift, and the competitive rivalry is, frankly, brutal. The fight isn't just with other EdTech players; it's a direct confrontation with the foundational technology giants. Chegg, Inc. had to take the fight to court, filing a complaint against Google in February 2025 over its AI Overviews (AIO). The core of the issue is that Google's AIO is allegedly keeping users on its platform, starving Chegg of essential traffic. Chegg asserted that this had already led to a devastating 49% drop in non-subscriber traffic as of January 2025. That's a huge chunk of the top of the funnel just vanishing.

To survive this, Chegg, Inc. has been forced into drastic, internal measures to become a leaner competitor. This wasn't a single event; it was a sustained, painful reduction. The company announced a massive restructuring on October 27, 2025, cutting 45% of its global workforce, which amounted to 388 employees. This followed an earlier cut in May 2025, which eliminated 22% of staff, or 248 employees. Honestly, eliminating more than half the workforce in under six months shows you the severity of the competitive pressure. The goal here is clear: this restructuring is intended to slash 2026 non-GAAP expenses by approximately $100 million to $110 million.

The financial results from the third quarter of 2025 clearly illustrate the impact of this fierce market fight. Total Net Revenue for Q3 2025 landed at $77.7 million, marking a 43% decrease year-over-year from the $136.59 million reported in Q3 2024. To counter this, cost discipline became paramount, driving Non-GAAP Operating Expenses down 46% year-over-year to $49 million. Still, the competitive environment is so intense that even with these cuts, the company is pivoting hard toward a new growth area.

Here's a quick look at the Q3 2025 performance metrics that reflect this intense rivalry and the subsequent internal reaction:

The competition isn't just from Google; it's from general learning platforms, specifically free, instant AI tools like ChatGPT that students are increasingly turning to. This has forced Chegg, Inc. to de-emphasize its legacy academic services, which saw Subscription Services revenue drop to $69.10 million in Q3 2025. The strategic response is a pivot to the $40 billion+ skilling market. The company is now focusing on its Chegg Skilling unit, which is projected to generate $70 million in revenue for the full year 2025 and showed 14% year-over-year growth in Q4 guidance.

You can see the pressure points clearly:

• Rivalry with tech giants like Google over search traffic.
• Direct competition from free, instant AI answer engines.
• Subscriber base for legacy services fell 31% year-over-year in Q1 2025.
• Workforce reduced by 45% in the final major cut of 2025.
• Strategic focus shifts to the $40 billion+ skilling market.

Finance: finalize the 2026 expense reduction forecast based on the Q4 operational run-rate by next Tuesday.

Chegg, Inc. (CHGG) - Porter's Five Forces: Threat of substitutes

You're looking at the competitive landscape for Chegg, Inc. (CHGG) right now, and the threat of substitutes is, frankly, the most immediate and existential challenge. Generative AI and Large Language Models (LLMs) are the primary substitutes here, directly replacing the need for Chegg's core Q&A service. It's a classic case of a new technology leapfrogging an established model.

The impact from one specific substitute, Google AIO (AI Overviews), was brutal and fast. Chegg reported that non-subscriber traffic plummeted by a staggering 49% in January 2025. This massive drop in top-of-funnel traffic clearly shows how a direct, zero-click answer mechanism on a dominant search platform cuts off the customer acquisition channel for Chegg's subscription services. To be fair, the core business was already showing strain, with Q1 2025 total revenue falling to $121.4 million, a 30% year-over-year decline. The subscriber base felt it too, dropping 31% year-over-year to 3.2 million in that same quarter.

It's not just the big tech players; free, high-quality open-source resources present a persistent, zero-cost alternative. Think about platforms like Khan Academy; they offer compelling educational content without requiring a subscription fee. While Chegg is fighting back by licensing its content-generating $4 million in Q1 2025 revenue from two AI company deals alone-this is a defensive move, not a replacement for the lost subscription revenue.

Here's the quick math on how the legacy business is shrinking versus the pivot: the Q3 2025 total net revenues came in at just $77.74 million, down 43% year-over-year. This forces the strategic shift Chegg is undertaking. The company is aggressively targeting the B2B Skilling market, which they frame as a new, less-substituted opportunity valued at over $40 billion. This pivot is essential for survival, moving away from the directly substitutable homework help space.

The company is clearly bifurcating its focus, running the legacy academic services for cash while pouring resources into this new area. This restructuring is visible in the cost base, with expected non-GAAP expense savings for 2025 set between $165-175 million. The new Chegg Skilling unit, which bundles Busuu and Chegg Skills, is projected to generate approximately $70 million in revenue for the full year 2025, expecting 14% year-over-year growth. What this estimate hides is that the legacy business is shrinking much faster than the new segment is growing, making the cost cuts absolutely critical.

You can see the contrast in the numbers below:

The threat of substitution is forcing Chegg to drastically re-engineer its operations. The actions taken are designed to survive the immediate threat while building a new foundation:

• Non-subscriber traffic fell 49% in January 2025 due to Google AIO.
• Q1 2025 revenue was $121.4 million, down 30% YoY.
• Q3 2025 revenue was $77.74 million, down 43% YoY.
• Targeting a $40+ billion B2B Skilling market.
• Expected $70 million revenue from Skilling in 2025.
• Non-GAAP expense savings targeted for 2025: $165-175 million.

If onboarding takes 14+ days, churn risk rises, but here the risk is immediate obsolescence of the core product offering.

Finance: draft 13-week cash view by Friday.

Chegg, Inc. (CHGG) - Porter's Five Forces: Threat of new entrants

The historical barrier of a proprietary content library is lowered by accessible generative AI technology.

Chegg, Inc. possesses a data set of over 90 million questions and answers, quality assured by humans, which once represented a significant moat. However, by late 2025, the landscape has shifted dramatically. Data from the Chegg Global Student Survey 2025 indicates that 80% of all undergraduates worldwide report using Generative AI tools to support their university studies. Furthermore, 29% of students now report turning to GenAI tools first, surpassing free online resources at 24% and friends/peers at 15%. This suggests that well-funded AI startups can rapidly build comparable, or at least sufficiently competent, knowledge bases without the decade-plus investment in human curation.

High capital investment is required for brand building and scaling to compete with Chegg's established user base.

Despite the technological erosion of the content barrier, Chegg, Inc.'s brand recognition still requires substantial capital to overcome. The core business is showing significant strain, with Subscription Services subscribers dropping to 2.6 million in Q2 2025, a 40% decrease year-over-year. Q2 2025 Total Net Revenues were $105.1 million, down 36% YoY. New entrants must therefore deploy significant marketing spend to capture the remaining market share or convince students to abandon the established brand, even as its core service declines. The company's 2024 total non-GAAP expenses were $536 million, illustrating the scale of the incumbent's prior spending base.

New B2B Skilling focus requires significant capital and time to build institutional trust and sales channels.

Chegg, Inc. is actively pivoting its focus toward growth engines like Chegg Skills and Busuu. Chegg Skills is projected to finish 2025 with approximately 14% year-over-year growth, targeting ~$70 million in full-year revenue. Busuu, the language learning unit, is projected to generate $48 million in revenue in 2025, based on Q1 2025 growth of 7% YoY. This B2B/SaaS focus presents a different, but still high, barrier for new entrants: institutional trust. Securing contracts and building sales channels within educational institutions or corporate training departments requires time and verifiable success metrics, which Chegg is now trying to establish through pilot programs. The company's full-year 2025 Capital Expenditures (CapEx) is approximately $27 million, indicating the level of investment required to support these new ventures, which new competitors must match or exceed to gain traction.

Low student switching costs make the core academic market highly attractive for nimble, well-funded AI startups.

The low friction for students to test or adopt alternative AI tools directly impacts the stability of Chegg, Inc.'s subscription base. The steep decline in subscribers suggests that the perceived cost of switching from Chegg Study Pack to a new, free, or cheaper AI alternative is low for a significant portion of the user base. The Subscription Services Revenue for Q2 2025 was $89.7 million, a 39% decrease YoY. This rapid erosion demonstrates that the perceived value proposition is not sticky enough to prevent migration when a perceived superior or zero-cost alternative emerges. The company is targeting non-GAAP expense reductions to under $250 million by 2026, signaling a lean operational stance that may limit its ability to aggressively defend against low-cost, nimble entrants in the academic space.

Here is a quick look at the diverging performance metrics as of mid-to-late 2025:

Finance: draft 13-week cash view by Friday.