Dan Rosensweig has been in the technology industry for a long time and recognizes significant platform changes when he sees them. As Yahoo’s chief operating officer, he held one of his top posts in the consumer Internet when the iPhone revolutionized his mobile computing.
This week, Rosensweig found himself in the midst of another technological upheaval. The online education company Chegg, of which he is CEO, was marked by being the first to report the business impact of generative artificial intelligence. Some students began asking Smart He chatbots for answers rather than subscribing to their own service.
Pointing to his experience from previous big tech shifts, the former Yahoo boss was quick to argue that incumbents like Chegg are well positioned to be big winners from such a revolutionary new technology.
Wall Street decided this sounded like wishful thinking and sent Chegg’s stock down nearly 50% in a single day. But is Rosensweig’s claim on point?
The answer will be of great interest to many other industry executives. The online education market appears to have been the first to be disrupted by generative AI. It certainly won’t be the last.
Incumbents like Rosensweig like to point to customers and brands as assets. These companies help withstand disruptive new entrants who often use new technology to launch free but undifferentiated services. It can also put you in a stronger financial position than the Disruptor when the venture capital flowing into the new fad of .
This is often presented as a straight forward investment choice, either supporting the conservatives or supporting the disruptors, but the outcome is seldom one or the other. With the emergence of free services powered by new technologies, companies without a strong value proposition often disappear, and many others do not develop the necessary new skills and processes. But many disruptors, who often use free services as lures, don’t embark on sustainable business models before they run out of cash.
The news business is a good example. The latest wave of startups has hit hard, with BuzzFeed shutting down its award-winning news division and Vice Media’s owner struggling to find a buyer for his company for more than a year. increase.
Whoever is the long-term winner of generative AI, companies that were thought to have their sights set will soon face the consequences. Chegg’s value is just one-third what it was when his ChatGPT launched late last year, despite saying this week that AI is having a “minor” impact on the company’s business. not considered by Wall Street.
Even companies that respond quickly to threats cannot gain credibility until the competitive dynamics of the new market are well known. Rosensweig isn’t sleeping behind the wheel. Chegg has taken a course that many other companies are likely to follow, forming its own partnership with OpenAI and preparing to integrate AI into its services.
Companies with customer data and industry expertise should be in a position to add a level of context to AI-powered services that generalized chatbots lack. For Chegg, this includes knowing a student’s history and achievement level, and can give students prompts that focus on knowledge gaps. I also have many years of experience teaching the same course and learning from the questions other students ask.
Is this kind of data and domain knowledge enough to keep customers from switching to less effective free chatbots? There is no way to tell. But after witnessing the impact free internet services have had on various industries, many investors are likely to vote with their feet.
Ultimately, as Rosensweig said this week, the hope from this significant platform transition is to significantly scale the digital marketplace, but the journey is “very bumpy, very bumpy. , very uncertain”. Executives in many other industries will soon find themselves explaining to their investors how they deserve a big chunk of this new AI-powered future.
Drawing on years of experience, Chegg’s CEO sought to counteract the stock market’s reflexive reaction. But in times of crisis, Wall Street has a hard time understanding the difference.
richard.waters@ft.com
