Textbook rental company Chegg is partnering with Ingram Content Group, a large book distributor, to lighten its textbook load.
Chegg faced becoming obsolete as students continue to make the shift to online materials. The company, which went public last year, will pursue digital operations while Ingram handles the storing and shipment of physical textbooks.
Chegg has for years worked to become one of the biggest and best in the textbook rental business. But late last year the company went public and is now facing the problem that its signature business is becoming obsolete. Michael J. de la Merced of The New York Times reports that this week, however, the company announced that it had partnered with the Ingram Content Group, a large book distributor, which will handle the storing and shipping of textbooks. This will free Chegg to continue building its digital operations.
Chegg (the name is derived from the “Which came first, the chicken or the egg?” question) saw sales rise to $256 million while its net loss grew to $56 million.
Chegg is making a huge effort to become a higher-margin digital services provider, with e-textbooks, test preparation materials, and career counseling, among other offerings. The partnership will help make this possible.
“What this does is that it liberates, just in the first part of the deal, about $25 million of our own capital that we have historically used to buy textbooks and take risks,” Dan Rosensweig, Chegg’s chief executive, said in a telephone interview. “That’s something we don’t have to do. That’s an enormous change.”
Still, the company wants to keep its relationship with students. Because of that, very little will change in that category. Ingram deals with booksellers and college bookstores, so it will not have to be concerned about a relationship with students. Basically, the only change for Ingram is that it will gain a partner. Another plus is that Chegg’s orders will be delivered more quickly because of Ingram’s warehouses around the country. On Monday, Chegg reported an $8.6 million loss in its second quarter, though sales rose 15% from the same time last year, to $64.5 million.
At this time, two-thirds of Chegg’s customers are ordering digital resources, says Sarah Buhr reporting for TechCrunch. Chegg also acquired the online tutoring company InstaEDU in June for $30 million. Already the new acquisition has increased Chegg’s digital sales by 15%.
With Ingram, Chegg will see revenue go down materially, but profit margins and cash use will become more favorable, according to Sarah Drake writing for American City Business Journals.
“This is a long-term strategic growth opportunity,” said John Ingram, CEO of Ingram Content Group. “Together we can improve service and delivery speed for Chegg’s students, while leveraging the combined force of Chegg’s consumer brand and reach, and our expertise in distribution and logistics.”
Chegg will also manage the cataloging, pricing, marketing, and customer support side of its physical book business. It will keep the commissions for textbooks sold or rented on its website.
“By leveraging Ingram’s world-class logistical capabilities, this alliance allows Chegg to maintain all of the advantages of brand, customer acquisition, marketing and data from the print textbook business, while freeing up significant cash,” Dan Rosensweig, chairman and CEO of Chegg, said in a press release published on MarketWatch.