According to CNBC, Chegg announced on Monday it would lay off approximately 45% of its workforce, affecting 388 employees, citing the “new realities” of artificial intelligence and reduced traffic from internet search as key factors behind plummeting revenue. The online education company, founded 20 years ago, has been significantly impacted by generative AI tools like OpenAI’s ChatGPT and has sued Google over AI summaries affecting its traffic. This marks the second major round of cuts after Chegg eliminated 22% of its workforce in May, with the company’s stock having lost 99% of its value since its February 2021 peak of $113.51. CEO Dan Rosensweig is returning immediately, replacing Nathan Schultz, who will remain as an executive advisor, while the company has ended its strategic review process and will remain standalone. This dramatic restructuring reflects the profound challenges facing traditional education technology companies in the AI era.
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The Structural Threat to Traditional EdTech
What makes Chegg’s situation particularly alarming is that this represents more than just typical market competition—it’s a fundamental disruption of their entire business model. Chegg built its value proposition around being an intermediary between students and educational content, but generative AI effectively eliminates the need for that middle layer. When students can get instant, personalized explanations from free AI tools, the economic rationale for subscription-based homework help services collapses. This isn’t merely about ChatGPT being a better product; it’s about AI fundamentally changing how knowledge is accessed and consumed in education. The company’s NYSE delisting warning earlier this year was just the most visible symptom of this deeper structural challenge.
The Search Traffic Collapse
Chegg’s lawsuit against Google reveals another critical vulnerability that many content publishers are now facing. As Google and other search engines increasingly provide AI-generated answers directly in search results, the traditional traffic funnel that drove users to educational content sites is disappearing. This creates a double-whammy effect: not only are students bypassing Chegg for AI tools, but even those who might have discovered Chegg through search are now getting answers directly from Google. The company’s acknowledgment that “reduced traffic from Google to content publishers” has damaged its business underscores how dependent the entire digital education ecosystem was on search engine visibility—a dependency that AI is rapidly eroding.
The Pandemic Boom and Bust Cycle
Chegg’s dramatic rise and fall also illustrates the dangerous volatility that came with the distance education boom during COVID-19. The company’s stock peaked at $113.51 in February 2021, reaching a market cap of approximately $14.7 billion, as investors bet heavily on the permanent shift to remote learning. However, this created unrealistic expectations and valuations that couldn’t be sustained once normalcy returned. More importantly, the pandemic acceleration of digital education adoption actually made the industry more vulnerable to AI disruption by conditioning both students and educators to seek digital solutions. Chegg benefited from the digital transition in the short term but ultimately became more exposed to the AI revolution that followed.
Leadership Musical Chairs Won’t Solve AI Problems
The return of Dan Rosensweig as CEO raises serious questions about whether leadership changes can address what is essentially a technological and market structure problem. Rosensweig originally stepped down in April 2024, handing the role to former COO Nathan Schultz, only to return six months later amid continuing struggles. This rapid leadership turnover suggests the company is searching for solutions that may not exist within its current business framework. While remaining a standalone company might preserve some shareholder value in the short term, it doesn’t address the core issue: Chegg’s fundamental value proposition has been largely obsoleted by AI technology that provides similar services for free.
Broader Implications for Education Technology
Chegg’s crisis should serve as a warning to the entire education technology sector. Companies that built their businesses around content aggregation, homework help, or tutoring services need to fundamentally rethink their value propositions in an AI-dominated landscape. The traditional model of human-powered or curated content solutions is becoming increasingly unsustainable when AI can provide instant, personalized assistance at scale. This doesn’t mean education technology is dead—far from it—but it does mean that companies must either develop proprietary AI capabilities that outperform general models like ChatGPT, or find ways to integrate AI as a complement rather than a replacement for their core services. The companies that survive will be those that can demonstrate unique value that AI cannot easily replicate, whether through specialized content, trusted relationships with educational institutions, or superior learning outcomes.
