Why Chegg’s move is bad for students

Chegg, once dominant in the textbook rental market, has announced that it will be selling off its textbook inventory and allowing Ingram to handle distribution- paying Chegg a commission. In short, this will end up hurting the consumer because Ingram does not have as much of an incentive to price-beat as Chegg did. Chegg gained a large share of its revenue from digital content sales which could subsidize low book rental prices. Ingram on the other hand, has to pay Chegg a 20% commission on every sale and has no add-on’s to subsidize the low prices that Chegg once offered.

There are not as many actual textbook distribution companies as you may think. The textbook industry is dominated by “middle-men”, such as price comparison websites and marketplaces. Price comparison websites don’t own any books, they refer their viewers to other sites (who may not own the books either) but pay them a referral fee if a purchase is made. For instance: say you visit a price comparison site which directs you to Amazon and you end up purchasing the book on Amazon. In that transaction you just made, the price comparison site made up to 8.5% of the sale for sending you to Amazon and Amazon made 15%+ of the sale. The actual owner of the books bears the burden of these fees which end up being passed on to the consumer who purchased the book. Amazon sellers know that they will be charge 15%+ on every sale so they take that into consideration when setting a price- Amazon knows that they will have to pay the price comparison site up to 8.5% of the sale so they take that into consideration when setting their fees. It ends up being better for all parties if the customer buys directly from the source instead of through middle men such as price comparison sites, all things being equal.

Enter companies like Chegg. Chegg owns all of it’s inventory and does not have to pay a 15% fee to a marketplace (although they do have an affiliate program like Amazon). Therefore, a book sold on Chegg can sell for a lower price and reap the same profit as a book sold on Amazon.

When it comes down to it, companies that own the textbooks are the ones that add value to the market. Price comparison sites and marketplaces are great but they have no skin in the game and can only exist with an abundance of sellers. These websites charge fees for being a middle-man which ends up being passed onto consumers- although marketplaces such as Amazon are arguably very efficient and good for consumers.

Chegg, a company that did $200 million in textbook sales last year, is likely to become less price competitive because of its new arrangement. Only time will tell how big of an effect this will have on the overall textbook market.