ON CHRISTMAS DAY Amazon.com said its customers purchased more Kindles than physical books for the first time ever. Last week, more than half a dozen companies, including Samsung Electronics, unveiled new e-readers at the Consumer Electronics Show in Las Vegas. Next up: Apple is expected to release a tablet-style computer, which can be used for reading, at the end of the month.
As the e-reader reshapes the publishing industry, how are affected businesses recalibrating? At Chegg.com, a Santa Clara, Calif.-based online textbook-rental company, it’s a work in progress. Though the three-year old company has yet to turn a profit, co-founder Aayush Phumbhra says he is banking on the fact that about three-quarters of his clients still “like the feel of actual books.” For the short run at least, that means sticking to the company line of marketing Chegg.com as a business that will save its customers money.
To keep operations going, Phumbhra recently secured $112 million in debt and equity financing from venture capital investors. While Phumbhra declines to discuss his sales figures, published reports say that Chegg.com generated $10 million in revenue in January of 2009 — the same amount that it rang in for all of 2008.
SmartMoney asked Phumbhra about the ups and downs of his online textbook rental firm. Here are his condensed answers.
Where did the idea for renting textbooks to college students via Chegg.com come from?
When we started this business, I was in school at Iowa State University struggling with textbook prices. There, I got involved in the web site CheggPost.com. It was like a Craigslist.org for college students. At the site, they bought and sold books to each other. Many of them found that they could save money, rather than buying from the campus bookstore. But still, books weren’t affordable. Then Netflix, a web-based DVD rental firm, changed the way we viewed the whole textbook industry. For the first time, we considered online textbook rentals. Today, students from 6,400 campuses now rent from Chegg.com’s catalogue, which has 2.4 million textbooks, for roughly half the price.
Business: Chegg.com, an online textbook rental firm.
Location: Santa Clara, Calif.
Year founded: 2007
Number of employees: 112
Web address: chegg.com
Textbooks are constantly receiving updates and the newest versions are often in demand at schools. How does Chegg.com deal with textbook churn?
We’re basically able to rent various versions of textbooks simultaneously. So even though one campus might be using a newer version, another campus may use one that’s older. Books that we can’t rent anymore get donated.
In the past few years, the textbook industry has become increasingly competitive. In addition to Chegg.com, Textbooks.com, BookRenter.com, CampusBookRentals.com and Flat World aim to steer students their way. How does Chegg.com stand out?
Since we offer rentals, students don’t have to go through the hassle of selling their books back. They also receive a 30-day satisfaction guarantee and any time a book is either rented or sold, we’ll plant a tree. By the end of this semester, we’re projecting to have planted nearly 2 million trees. Plus, we’ve saved students more than $85 million off the list price for new books.