On May 1, 2023, the homework-help company Chegg reported first-quarter earnings and, in the same release, told investors that ChatGPT was starting to hurt its business. CEO Dan Rosensweig said, “In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth and we were meeting expectations on new sign-ups. However, since March we saw a significant spike in student interest in ChatGPT. We now believe it’s having an impact on our new customer growth rate.” The quarter itself was not a disaster - total net revenues were 187.6 million dollars - but the warning about future growth landed hard, and Chegg’s stock fell by roughly half the next trading day.
It was one of the first times a publicly traded company explicitly told the market that a free generative-AI tool was eating into its paying customer base. Chegg’s response was to lean in: in the same release it announced CheggMate, an AI study product built on its own data and expert network in collaboration with OpenAI, arguing it could “embrace” the technology rather than be erased by it.
The one-line lesson: a free, general-purpose AI tool can directly substitute for a paid product, and the market reprices an incumbent the moment it admits the substitution is happening - even before revenue actually falls.