Image source: generated by Unbounded AI

According to Tech Crunch report on December 5, OpenAI plans to integrate AI chatbots into online courses to explore customization The possibilities of “GPTs” in education. A spokesperson for the OpenAI education team revealed that OpenAI is exploring allowing teachers to create customized chatbots based on their own professional experience and knowledge so that students can learn specific subjects more deeply. However, this report did not disclose whether the schools are targeted at K12 or universities.

Prior to this, OpenAI has already had a series of consistent actions in the education segment.

In November 2022, OpenAI invested in Speak, a spoken language learning platform. In May this year, OpenAI released ChatGPT EDU to provide college students, teachers and campus staff with functions such as summarizing, developing lesson plans, and data analysis to build a university version of "Exclusive ChatGPT"; in September, OpenAI hired American online education provider Coursera Executive Leah Belsky serves as its first general manager of education operations.

Before this, many entrepreneurs believed that the goal of products like ChatGPT was to pursue AGI, rather than seeking the ultimate experience in a specific direction. In the application direction, it was more about touching the core use cases. The minimum requirement is to cover as many users as possible and obtain data feedback training.

In fact, before OpenAI officially launched its efforts in the education field, many companies had already suffered a considerable impact on their business. Now, if OpenAI really wants to take a share of the education market, what impact will it have on AI education products? Let us first use some previous signs as a basis for observation.

1. After ChatGPT went online, listed companies were at both ends of the spectrum

We first focused on large companies. We found that after ChatGPT went online, Two listed companies with leading products are both in the field of education, but they have followed completely opposite scripts.

After the launch of ChatGPT, there is no one of the worst listed companies

Chegg was established in 2005 and started as a textbook rental business. With the digital transformation, it has expanded online tutoring and academic resources. Sharing and other services were listed on the New York Stock Exchange on November 13, 2013. After its listing, Chegg gradually built its own online education kingdom and successively launched online tutoring products in niche areas such as mathematics, writing, and language education. Chegg's revenue comes from two categories: "subscription services" revenue and "skills and other businesses" revenue (Chegg Skills, advertisingreports, and other income). From 2017 to 2023, subscription service revenue accounted for 73% and 79% of total revenue respectively, and 80+% in 2019 and thereafter.

Most of the functions of Chegg’s products have been integrated into Chegg Study. Currently, only Chegg Study, Mathway and Busuu are online | Source: Sensor Tower, Diandian Data

Last month, Chegg (NYSE:CHGG) released its third quarter 2024 financial report. According to the latest data, Chegg's revenue in the third quarter of this year was US$137 million, a year-on-year decrease of 13% from US$158 million in the third quarter of the previous fiscal year; subscription service revenue was US$120 million, a year-on-year decrease of 14%. Net loss was US$213 million, a loss that expanded about 10 times year-on-year; non-GAAP net profit was US$9.8 million, a year-on-year decrease of 58%.

From the perspective of revenue data and subscription service income, Chegg does not seem to be too miserable. The non-GAAP net profit that better reflects the main business situation is also nearly 10 million US dollars. But this quarter's non-GAAP net profit looks passable mainly because it excludes $196 million in business impairments and $55 million in litigation damages. In June this year, Chegg once again announced layoffs to save costs. If we stretch out a little longer, Chegg is already in decline.

In 2020, online education exploded, and Chegg reaped dividends. Revenue, subscription revenue, and non-GAAP net profit were all growing rapidly (the ups and downs are related to the school start & holiday cycle. This type of company mainly observes Q2 and Q4 data). But basically, it has entered a stable period after one year of rapid development, and even non-gaap net profits have gradually declined in the two fiscal years 2021-2022. After ChatGPT was launched in Q4 2022, the three data have dropped all the way, and there is no looking back.

If the data on "money" can be stabilized through some strategies, the curve of the number of subscribers, the most core indicator for Chegg, can more intuitively reflect changes.

Number of Chegg subscription service users over the years | Data source Chegg financial report

In 2022, Chegg reached its data peak, exceeding 8.2 million subscribers, and its revenue at that time also reached $760 million. But by 2024, the number of subscribers in Q3 will be almost halved, less than 4 million. Public investors also vote with their feet when it comes to such business data. When Chegg was at its peak, its stock price reached $113 and its market value was approximately $14.7 billion. Today, Chegg’s share price is only 2.19U.S. dollar, with a market capitalization of approximately $228 million. Shares fell 98%, wiping out 98% of its market value.

Image source: Chegg official website

For such performance, Chegg’s CEO blamed the changes in AI technology. Google and OpenAI were mentioned again in this quarter’s financial report. resistance brought by giants.

Different fates among peers: Duolingo, which is rising steadily

However, Duolingo (NASDAQ: DUOL), also a listed education company, has submitted a completely different report card. Duolingo’s third-quarter financial report showed that revenue was US$193 million, a year-on-year increase of 40%; subscription service revenue was US$158 million, a year-on-year increase of 49%; net profit was US$23.4 million, a year-on-year increase of more than 7 times.

Data comes from the official websites of Chegg and Duolingo

Duolingo was founded in 2011 and successfully listed on Nasdaq in 2021 with its "advertising + subscription" business model . According to official data from Duolingo, subscription revenue has always accounted for more than 70% of total revenue, and has remained above 80% since Q2 this year. A similar business model has also experienced the ChatGPT craze. Compared with Chegg's cumulative net loss of US$800 million in the first three quarters of 2024, Duolingo's financial report showed a net profit of US$74.67 million in the same period, a year-on-year increase of 1790.3% (Duolingo did not announce Non-GAAP net profit data, net profit is used for comparison here).

Since its listing, Duolingo’s total revenue and subscription revenue have continued to grow, and its net profit has also risen steadily after an initial slight decline. A few months after the launch of ChatGPT, Duolingo entered a state of sustained profitability. In terms of subscribers, Duolingo also maintains a growth trend, which is opposite to Chegg's subscriber number.

Why are Duolingo and Chegg, both listed education companies, making money from subscription fees and experiencing the emergence of ChatGPT, showing contradictory financial reports? Perhaps the root cause is not, as Chegg CEO said, "the negative impact of AI technology."

2. Why do Chegg and Duolingo have different scripts?

Chegg has many products, and currently there are only three products left in the APP Store: Chegg Study, Mathway and Busuu. But looking at the revenue data, its core product is undoubtedly Chegg Study.

Cehgg’s online product revenue in the past half year | Figure source data

If you compare Chegg Study and Duolingo, Chegg and DuolingoWhy do these two companies in China use different scripts? We have seen several reasons:

1. Regarding AI, the repeatedly jumping Chegg and the stable Duolingo

Chegg truly embraces AI, and the first product containing AI technology launched is In April 2023. However, according to the Wall Street Journal, as early as 2022, some employees within Chegg suggested developing an AI question answering function, but the proposal was ignored by senior management. Chegg relied on question banks and manual online question answering to reach the top of the industry. They firmly believed that "artificial intelligence" was not enough. It is reliable and cannot replace Chegg Study.

But as ChatGPT exploded, Chegg began to waver. In early 2023, Dan Rosensweig (then President and CEO of Chegg) began to contact OpenAI, and in April they collaborated to launch the AI ​​learning tool CheggMate. As a separate functional module, ChaggMate is embedded in Chegg Study and connects the GPT-4 model to its own question bank. It can answer questions in all subjects according to user learning needs, give guidance and improvement suggestions, and generate tests. Dan said at the time that it would become “the most powerful learning partner for students around the world.”

However, in May, less than a month later, Dan stated on the earnings call that ChatGPT had affected Chegg’s user growth and that they would no longer cooperate with OpenAI. The financial report at the time showed that Chegg's subscription service revenue and subscriber base fell by 3% and 5% respectively year-on-year. These two data fell year-on-year for the first time in many years.

In August 2023, Chegg officially announced its shift to cooperate with the data annotation company Scale AI, planning to build more than 20 AI systems for different disciplines. Since then, CheggMate has almost no longer been mentioned, and it is difficult to find it on the official website and Chegg Study. In an interview in November of that year, Dan expressed his “disgust” with CheggMate, which seemed like a childish complaint about OpenAI.

Dan said in the interview that he “wanted to throw CheggMate off the stairs” and “it’s not worth mentioning” | How ChatGPT Brought Down an Online Education Giant© Andrey Rudakov/Bloomberg News

Compared with Chegg's repeated cooperation with OpenAI, Duolingo started very late, but it is much more determined.

On March 14, 2023, Duolingo became the first customer of the GPT-4 model. This time is actually the same asChegg is pretty much it. On the same day, Duolingo launched the Duolingo Max service based on the GPT-4 model (limited to native English speakers on iOS in the United States, Canada, the United Kingdom, Ireland, Australia and New Zealand to learn Spanish or French), which is powered by AI and provides services for native English speakers. The "answer explanation" and "role playing" functions make it more interactive and realistic when learning Spanish and French. In fact, many AI education products had already been launched at that time, and it was not too early for Duolingo Max to be launched.

The cooperation between Duolingo and OpenAI embodies two characteristics. One is bold but cautious. As a product with over 100 million users a month, it has been online on ChatGPT for about 4 months. The AI ​​function It was launched, but only to people with specific needs in specific markets, which is equivalent to a small-scale test. The other is that Duolingo is actually quite sensitive. Although the two companies launched AI functions at about the same time, Duolingo started much earlier.

Although there is no official announcement, judging from the earliest information that can be found, Duolingo obtained early access to the GPT-4 model as early as September 2022 (ChatGPT-4 was officially released in March 2023 release). Duolingo’s head of AI once mentioned in an interview that after seeing the capabilities of GPT-4, Duolingo immediately decided to develop related new features, and Duolingo Max was born. In October of the same year, Duolingo issued an official announcement to launch the self-developed learning model Birdbrain, which optimizes course quality and adjusts difficulty based on Duolingo user data. OpenAI's model is responsible for making conversations more natural, and Birdbrain is responsible for creating more personalized content. Duolingo The CEO says the two are complementary in nature.

In September this year, Duolingo launched two more AI-driven functions in the APP: "Video Call" allows users to practice speaking through videos with their virtual IP character Lily, and "Adventure" provides a rich A dynamic plot experience that allows users to talk to popular characters such as Lily and Oscar based on context.

When an innovative technology emerges, head products will be more cautious when integrating the new technology. However, it is obvious that Chegg’s decision-makers first ignored the importance of the new technology, and later on how AI can empower product experience. The thinking and execution are very jumpy and sloppy.

Chegg/Duolingo and OpenAI cooperation timeline

2. Being subverted vs. being blessed

Back to the product itself, Chegg Study can be said to be a “homework companion”.", and Duolingo belongs to the learning of a language.

Looking at the combination of AI and these two things, the usage process of Chegg Study is to take pictures/ask questions - match - yes, give the answer/no , waiting for online Q&A. After AI comes, it’s time to take photos/questions - AI analyzes the questions and gives answers directly. It can be said to be a complete subversion of the process.

But Duolingo. It is a systematic course + gamified design + strong operation developed over many years. After the arrival of AI, even if it can perform at a super level, the most it can do is to develop some personalized learning content or some simple gamified levels, but it will be difficult to shake one. A sufficiently stable triangle. For information on Duolingo, please refer to our previous topic "With billions of users, DAU and revenue are still growing rapidly, the former CPO shares how large-volume products break through growth difficulties"

So, based on this. Fundamental logical differences, Chegg Study Integrating CheggMate is an impact on the original system, and the two are contradictory. The functions added by Duolingo have nothing to do with the "main line", but are more about experience blessings, such as adding additional speaking exercises during video calls, and the same goes for the plot experience.

3. The intensity of competition on the track is different

In fact, it is also because AI has subverted the moat for building question-answering products. Once the barriers collapsed, a large number of new products flooded into the market.

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With Chegg Products in the same track as Study, with domestic overseas products as the main force, will flood into the market in large numbers around 2022. Although accuracy issues are often criticized, different products are also actively interacting with users to carry out product iterations. For example, because Answer.AI is a brand-new product, it is basically a "large model + multiple rounds of interaction". It guides users to learn in depth by expanding their knowledge, and will also give a small amount of free quota every day; Byte Gauth also used a "question bank + expert Q&A" Patterns, and Chegg Study It's very similar, but after entering the AI ​​era, Gauth chose to switch to the "question bank matching + AI problem solving" model. There are 11 free AI problem solving quotas per day, and expert Q&A is used to answer a small number of difficult questions as a paid Project launch.

Gauth will be launched in March 2021, Question.AI will be launched in May 2023, and Chatboard (later renamed Answer.AI) will be launched in March 2023. It was launched in March, and the number of downloads of the product in the past year has been higher than that of Chegg Study | Source data

As mentioned above, large models can answer a question correctly, but it is difficult to systematically master a language. It has caused too much impact. Therefore, we can see that after ChatGPT became popular, especially after the voice mode has developed relatively mature,The functions brought by these large models have led to the new product on the language track being not AI learning language, but AI speaking, so Duolingo has been less impacted. Duolingo has also added relevant features to its own products to make subscriptions more worthwhile. The subscription price of Duolingo Max is $30/month, $168/year; you can experience all Duolingo’s AI features, get unlimited learning opportunities, fix the number of consecutive learning days every month, and there are no ads. At the same time, Duolingo Max covers all membership benefits within the app.

As of November this year, among the top 13 software on the iOS language revenue list, every software has a speaking practice function, and 8 of them specialize in spoken language learning

Written at the end

Needless to say, the impact of generative AI on the education industry, Chegg's 98% plunge in stock price is a bloody case. However, as the old saying goes, everything has pros and cons. From Duolingo, we have seen that establishing the core barriers of a product cannot be bet on a single resource. Now OpenAI is trying to enter the education market segment. It encourages teachers to use professional knowledge and skills to develop customized GPTs, which may also have an impact on the new wave of question-answering products. The answer to the question of how each company's products can accurately create irreplaceable core advantages is constantly changing.