Chegg's Biggest Challenge: How To Clamp Down On Cheating And Account Sharing

Chegg Inc CHGG, the online tutor and academic answer provider, has enjoyed a nice ride since March, when Covid-19 forced schools to close their campuses. The stock is up 150% since St. Patrick’s Day.

Their last earnings report described “remarkable trends” as students went home including, “a substantial increase in new subscribers, both domestically and globally. CFO Andy Brown also told investors on a June 24 video call, “We’ve clearly been seeing tailwinds since the shelter in place and kids were learning off campus.” Those tailwinds and trends boosted their earnings, and it seems their stock value, accordingly.

But buried in that video call with the CFO though was a nugget that could give investors pause. While growth is strong and likely to continue so long as students are displaced and studying online, Brown said the company is focused on cracking down on account sharing. They are, Brown said, “developing technologies to try to either eliminate or reduce account sharing” and “I don’t think we comprehended as a company how big account sharing has been.” That makes sense. If you can cut down on account sharing, you ought to be able to increase paid subscriptions.

And so Chegg, Brown said, plans, “to pull in some of our technology solutions around account sharing” for the fall. Those include, “developing device management capabilities inside Chegg Study and MFA, multi-factor authentication.” MFA is the technology that requires a step of confirmation beyond, in Chegg’s case, the account password – something like a code sent to a paired mobile phone or connecting with a known device such as a smart phone. It’s something Brown said, “will continue to allow us to have tailwinds.”

Here’s the problem – a really significant chunk of Chegg’s user base isn’t using the site to study. They are using it to cheat. And increasingly, they are getting caught – hundreds at a time. North Carolina State had 200 in one class. Hundreds more at Purdue. And more at Boston University and Georgia Tech and Cornell and on and on.

And to their credit, Chegg has helped turn in the cheaters. When schools or professors ask, Chegg turns over the account info of students who accessed forbidden material or sought or received answers to exam questions from “tutors.” Where accounts match student e-mail addresses or it can be inferred, it does not take Sherlock Holmes to make the case.

The students, not being absolutely stupid, have long shared Chegg accounts. Why cheat under your own name when you can use someone else’s? And, knowing that Chegg is now cooperating with schools, students have also stopped signing up for Chegg with their real names.

Now, imagine that Chegg wants to verify a subscriber’s identity on their phone. Or pair an account to a unique laptop. Rather than do that, rather than expose themselves to more trackable evidence of cheating, students who use Chegg to cheat, simply won’t use it. In other words, rather that boosting new accounts, more authentication may actually reduce them.

Further, account usage and subscriptions may also slip as students become aware that Chegg is outing them to schools. Or as more schools become aware that they can get that information and do.

If that happens, and how big a dent it can cause, depends on how many of Chegg’s paying users are using it to cheat versus how many are using it to actually, honestly study. My sense, is it’s far more of the former, very few of the latter. If that’s the case, Chegg’s policy of cooperation in cheating inquires and their efforts to limit account sharing may turn tailwinds into headwinds in short order.

Image: Chegg