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Chegg is suing Google parent Alphabet over claims the search engine’s artificial intelligence summary tool has hit its revenues, leading the US-listed educational technology group to weigh up a sale of the business.
California-based Chegg, which provides study tools for students, filed the complaint on Monday claiming that Google’s AI Overviews, which presents users with summary answers to their queries, serves to keep users on Google’s own site.
Chief executive Nathan Schultz said the search giant’s AI search changes had “unjustly retained traffic that has historically come to Chegg, impacting our acquisitions, revenue and employees”.
He added this was “materially impacting” revenues, leading to the company to instigate a strategic revenue in which it would explore “a range of alternatives to maximise shareholder value, including being acquired, undertaking a go-private transaction, or remaining as a public standalone company”.
Google said: “With AI Overviews, people find search more helpful and use it more, creating new opportunities for content to be discovered. Every day, Google sends billions of clicks to sites across the web, and AI Overviews send traffic to a greater diversity of sites. We will defend against these meritless claims.”
Chegg’s move comes as developments in AI shake global industries, from healthcare to education and the automotive sector. The fast development of generative AI since OpenAI launched ChatGPT in November 2022 has upended demand for edtech companies’ paid-for online learning tools, leading their valuations to plummet.
The company’s shares were down 22 per cent in pre-market trading on Tuesday. Chegg’s stock is down more than 80 per cent over the past year.
Edtech businesses are grappling with how to harness the benefits of generative AI, often integrating some of the tools into their own products, while also being wary of AI companies establishing rival platforms, such as OpenAI’s recently launched ChatGPT Edu and Google’s LearnLM.
In November, Chegg announced it was cutting another fifth of its workforce, having implemented a round of redundancies just six month earlier.
The company’s experience marks a wider trend of falling investment in online education companies, which last year fell to its lowest level in a decade in part because of the rapid rise of free generative AI tools.
Edtech businesses received just $3bn of investment in 2024, compared with $17.3bn at the peak of the pandemic in 2021, according to data from PitchBook.
Chegg reported on Monday that total net revenues for the three-month period to the end of December dropped nearly a quarter to $143.5mn compared with the previous year, while the number of service subscribers fell 21 per cent to 3.6mn.
Total net revenues for the full year were down 14 per cent at $617.6mn, the company said, while the number of service subscribers also fell 14 per cent to 6.6mn.