Chegg takes Google to court and blames the tech giant for an unfair competition over AI-generated search overviews. The online education company says Google’s AI overview sucks up traffic and revenue, and the business is struggling.
The lawsuit filed Monday in federal district court alleges that Google claims a summary generated by Google’s AI to extract information from sources like Chegg without sending users to the original site. I’m doing it. According to Chegg, it had a devastating impact on the business.
“The company, which provides online homework help, has filed a lawsuit against search engines and its parent Alphabet Inc. over its claim that it is an unfair competition due to Google AI’s overview products,” Bloomberg said. I’ve reported it.
According to Bloomberg, Chegg is considering major changes in its business model after Google launched an AI-generated search summary and then traffic to its education platform collapsed. The company says Google’s AI overview can provide students with answers directly and reduce the need to visit Chegg’s site.
“If Google wasn’t launching an AI overview, these two actions are connected because there’s no need to look at strategic alternatives,” said CEO Nathan Schultz. “To keep visitors on their own platform using Google’s AIO and Chegg content, traffic is blocked from appearing in Chegg.”
Google’s AI-generated overviews are hindering search-driven business
This is part of the big issues affecting search-driven businesses. Google’s AI-generated summary provides answers directly at the top of the search results, pulling information from a variety of sources without necessarily sending traffic. Whether it’s a search platform, media outlet or a reference site, websites that rely on search visibility are seeing a decline in visitors as Google’s AI keeps users on their own pages.
For Chegg, the impact is serious. The company has lost about 90% of its market value since its publication in 2013, and after the lawsuit was announced, its shares fell another 24%, immersing its shares above $1 per share. Chegg has introduced Goldman Sachs to explore options, including potential sales and going private, Schultz told analysts on Monday’s revenue call.
Chegg reported a net loss of $6.1 million in fourth quarter revenues with $143.5 million, down 24% from the previous year. The numbers slightly exceeded analyst expectations, but the first quarter forecast (between $114 million and $166 million) was forecast by analysts at $138.1 million. I wasn’t fully aware of this.
Google monopoly under fire
Schultz accused Google of handing over its own content to forced companies like Chegg only to include it in search results. He claimed that Google was profiting from Chegg’s content without driving traffic.
While sueing Google, Chegg is also investing in AI itself. The company integrates AI models from Meta’s open source llama, and private players such as humanity and Mistral. Schultz is also affiliated with Openai, which is recognized as both a competitor and a collaborator. The company reported 3.6 million student subscriptions in the fourth quarter, down 21% from the previous year. Subscribers will have access to AI-powered learning tools along with Chegg’s textbook rental and sales business.
Google’s AI overview is deployed in over 100 countries and reaches over 1 billion users. These summaries are often displayed at the top of the search results before linking to external sites. Critics claim they are leaking users from the original content creator and towards Google’s own ecosystem.
In response to the lawsuit, a Google spokesperson told CNBC that the company would fight back, claiming that the AI overview would actually send traffic to more different sources. According to another CNBC report, “Google sends billions of clicks to sites across the web each day, and AI overviews send traffic to more diverse sites.”
Chegg’s lawsuit alleges that Google taps a database of 135 million questions and claims answers to train AI models. The company provided a screenshot that outlines Google’s AI. Chegg’s original content appears to have been drawn from Chegg’s site, although it appears to have been lower in search rankings.
The lawsuit has leaned towards a federal judge’s ruling since August last year, and Google has determined that it has a monopoly in the search market. The decision stems from the antitrust case of Landmark 2020 submitted by the Department of Justice, claiming that Google created a barrier to entry and strengthened its advantage through an independent feedback loop.
Chegg’s case is the latest in a wave of lawsuits against AI-driven content aggregation. This is a battle where search engines can determine how they interact with publishers in the future. If Chegg wins, you can rethink Google how the AI generation summary works and whether companies that rely on organic search traffic can still survive.
Chegg’s decline in revenue highlights a broader trend in which AI is exchanging businesses offering services that are easily replicated by machine learning models. If AI can perform the same tasks faster, cheaper and at scale, companies built on traditional models struggle to compete.
Founded in 2005, Chegg built a business around online tutoring and academic support, helping students prepare for tests and write essays. The company’s subscription model starts at $15.95 per month and is a major revenue driver. However, as AI chatbots like ChatGpt appear as free alternatives, more students are moving away from paid services and putting Chegg’s business under pressure.
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