Global EdTech Industry in Turmoil After Chegg’s ChatGPT Warning Sends Shares Plummeting

The American educational technology company Chegg has issued a warning on ChatGPT, a learning tool that uses artificial intelligence. The news has shocked the entire EdTech market and sent Chegg’s stock spiraling downward.

In a recent development, US-based online education provider, Chegg, has revealed that its financial performance has been negatively impacted by the AI chatbot, ChatGPT, leading to chaos in the global edtech sector. This has raised concerns for Indian edtech companies as well.

Chegg offers homework assistance and online tutoring services, and has been collaborating with OpenAI to develop its own AI product, CheggMate. However, it appears that the impact of ChatGPT on the industry has been significant. With ChatGPT and other advanced AI technologies being developed rapidly by major players such as Google and Microsoft, it remains to be seen how the edtech sector will evolve in response to these challenges.

An AI-powered technology called ChatGPT enables students to get tailored help with their academic work. It generates answers to students’ queries and suggests additional reading material using natural language processing.

According to The Financial Times, on Tuesday, education company Udemy’s stock fell by more than 5%, Pearson’s stock on the London Stock Exchange dropped by nearly 15%, language-learning platform Duolingo’s stock dropped by 10%, and Chegg’s shares fell by 50%.

Large tech firms are currently in a race to develop more advanced versions of AI technology, with Google having launched its ChatGPT rival Bard in March. Meanwhile, in February, shares in parent company Alphabet experienced a sharp decline following the release of a new version of the Bing search engine by Microsoft, which boasted an array of advanced AI-powered features.

What Effects Will Chatgpt Have on the EdTech Industry?

ChatGPT has fully displaced the EdTech industry. The 340 billion dollar industry just had to embrace the artificially intelligent tool from the start. It was easy for students to cheat, thanks to its intellectual power and unlimited access, and schools were required to use it as part of their instructional practices.

Expanding on their prior study, offering objective insights, identifying limitations, translating crucial scripts, and developing helpful forms, outlines, and formats, also facilitates learning.

Dan Rosensweig, CEO of Chegg, stated: “We now believe it’s (AI) having an impact on our new customer growth rate.”

Andy Bird, CEO of Pearson, disagreed, claiming ChatGPT was a “fundamentally different business” from Chegg and did not pose a threat to the company’s business model. He told the Financial Times there was a potential chance to combine Pearson’s intellectual property with AI skills.

To keep students, the firm last month introduced CheggMate, a new service created using OpenAI’s GPT-4.

The California-based company said that it would introduce ChatGPT’s AI-powered CheggMate, a study tool customized to meet the needs of students, at a time when educators were debating the effects of the chatbot’s assignment drafting feature.

“We are adopting artificial intelligence technology aggressively and prioritizing our investments to take advantage of this opportunity,” Rosensweig said, as it continues to advance rapidly.

Due to the uncertainty around the impact on results, Chegg said it was postponing its full-year estimate. The company had also set a target for total sales for the second quarter of between $175 million and $178 million, less than the $186.3 million expected by Wall Street.

“Dancing in the rain without getting wet” is how Arvind Ramnani, an analyst at Piper Sandler, described Chegg’s need to make big changes in a rapidly shifting market.