Dan Rosensweig has been in the tech industry long enough to know a major platform switch when he sees one. As Yahoo’s chief operating officer, he held one of the most important positions in the consumer Internet when the iPhone launched the mobile computing revolution.
This week, Rosensweig found himself in the midst of another technological upheaval. The online education company Chegg, of which he is the CEO, has had the distinction of becoming the first company to report a success for their business from generative AI, as some students have turned to intelligent chatbots to get answers rather than to subscribe to their services.
Pointing to the experience of previous big tech shifts, the former Yahoo boss was quick to say that incumbents like Chegg will be big winners from transformative new technologies like this, provided they act quickly enough to co-opt them for their own use.
Wall Street decided that this sounded like wishful thinking and canceled almost 50 percent from Chegg’s stock price in one day. But is Rosensweig right?
The answer will be of great interest to executives in many other industries. The online education market appears to be the first to be disrupted by generative AI. It certainly won’t be the last.
Incumbents like Rosensweig like to point to their customers and brands as assets that can help them resist disruptive newcomers, who often use new technology to launch free but undifferentiated services. The cash flow of existing businesses can also put them in a stronger financial position than disruptors, at least when the venture capital pouring into new fads like generative AI runs dry.
This is often presented as a direct investment choice between backing the old guard or the disruptors, but the outcome is rarely so binary. The arrival of free services powered by new technology often kills companies without a strong value proposition, and many others will not develop the necessary new skills and processes. But many disruptors, who often use free services as bait, don’t settle for a viable business model before running out of money.
The news business is a case in point. The latest wave of newcomers has hit the rocks, with BuzzFeed closure its award-winning news division and the owners of Vice Media struggling to find a buyer for the company for more than a year.
Whoever the long-term winners of generative AI turn out to be, the companies thought to be in the crosshairs will face immediate consequences. Despite saying this week that AI has only impacted its business “on the fringe,” Wall Street believes Chegg is only worth a third of what it was when ChatGPT launched late last year.
Even companies that react quickly to the threat are unlikely to get credit until the competitive dynamics of the new market are better understood. Rosensweig did not sleep behind the wheel. Following a path that many other companies are likely to follow, Chegg has formed its own partnership with OpenAI and is preparing to integrate AI into its services.
Companies with customer data and industry experience should be able to add a layer of context to their AI-powered services that generalized chatbots lack. In Chegg’s case, this includes learning about students’ histories and achievement levels, making it possible to provide them with suggestions that capture gaps in their knowledge. She also has years of experience teaching the same courses and learning from questions asked by other students.
Will this kind of data and domain knowledge be enough for incumbents to keep customers from abandoning less effective, but free chatbots? There’s simply no way to tell. But after seeing the impact free internet services have had on a number of industries, many investors are likely to vote with their feet.
Ultimately, as Rosensweig said this week, the hope for a platform shift of this significance is that it will greatly expand the size of digital marketplaces, even if the road will be “very bumpy, very bumpy and very uncertain.” Executives from 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, the Chegg CEO tried to counter the stock market’s knee-jerk reaction: “This isn’t something that’s falling from the sky, it’s a technological shift.” But when there’s so much at stake, Wall Street struggles to tell the difference.
richard.waters@ft.com
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