Speaker 1

One of the enduring images, I'm sure all over Germany, Europe, and in six hours America,
little tiny people will be taking giant backpacks full of these heavy brick-like objects and
struggling their way through the snow to school. It's a process, as Stephanie mentioned, that
has been going on almost unchanged for a very long time. The only difference, I guess, is that
the textbooks get more and more expensive. They used to be cheap. Now they're vastly
hundreds. I have two kids in college, and I can tell you that I am a major profit center for a
number of fine publishers around the world. There's lots of problems to attack here. Osmun,
who came to the United States from Pakistan to go to college at the freezing University of
Minnesota. That's right. Stuck around and did electrical engineering and got interested in the
question of these book things. I think it's a slightly complicated story because I think he's
listed in some of the things as Chegg, which is one of the companies he's doing. But there's
actually a second newer company. I think we'll zoom through Chegg, which is fairly
straightforward, and then go on to the newer, more fun, no project, which is what the demo
will be when we get after this.

Speaker 1
Just tell us very quickly, what is Chegg and how does it work?

Speaker 2
Chegg allows college students to rent their textbooks, and it also gives you services around
the textbook. We started the company… Actually, the textbook rental part was plan B. Plan A
was to be a craigslist for colleges. But what we found, one category was extremely popular
among students, which was textbooks. We remembered our days in college when we had to
pay through the notes for textbooks. We said, Well, what we can do, which will be different.
We said, Allow students to rent their physical textbooks. We launched that company and it
just went on wildfire.

Speaker 1
That means you had to build.

Speaker 2
Warehouses, you had to- Physical infrastructure, warehouses. We had to build in a
sophisticated pricing system. It's almost like a stock market for textbooks because we
managed the price of textbooks on a daily basis to make sure we're never overcharging the
students or the price doesn't drop where it becomes unaffordable for us.

Speaker 1
They had to send them back, so you had to verify that they were okay in decent condition?

Speaker 2
Absolutely. It's a funny story there. When we were starting the company, everyone pretty
much said, Don't do it. Students are going to cheat you. They won't give you your books
back. Our philosophy was look, maybe one or two % of kids will do that, 98 % are good. We
are actually going to design the company for the 98 %. It turns out that's exactly what
happened. Now, in the process, Harry Potter was all the rage and was the Minister of Magic.
We said, Let's get a Minister of misinformation. Because we began to tell the market, Oh, the
books aren't coming back as well and it's a big trick, it's not going to work. But so that we
could stay in the market longer without competitors jumping in, and it worked out really well
for us.
Speaker 1
How many years ago was that when you started?

Speaker 2
It was 2006.

Speaker 1
2006. How many roughly customers.

Speaker 2
Do you have now? So Check today has roughly four and a half million students, and they're
not just renting textbooks, they're doing scheduling. They have homework help, there's
tutoring. We also bought the company called Zinch, which is like a LinkedIn for students. It's
broader services in general around the textbook.

Speaker 1
Typically, the typical $100 college textbook goes for how much? What's the rental price?

Speaker 2
Forty-five.

Speaker 1
Forty-five. You can.

Speaker 2
Save more than half. You can take a lot of money. Students really don't need to keep all their
books. They can always buy the books they really need. I may need a math book for sure if
I'm going into major, but I don't need most of my books. I can just use them and then ship
them back.

Speaker 1
Are the publishers freaking out about this?

Speaker 2
No, actually, they're not because the used book market already is pretty significant. It's almost
35% of the market already, and that's part of the used book market. That's how it works.

Speaker 1
So you're really competing with the used book market, not.

Speaker 2
With the-Yeah, exactly. Because for the publishers, they only sell the book when it's new the
first time. It actually stays in circulation for two more years. Right. So the publishers never
see any money from that.

Speaker 1
How many times can you rent.

Speaker 2
A book, typically? A book typically lasts for three years, so it can go around for six semesters
easily.

Speaker 1
Six times 40 is two. Do you get a discount.

Speaker 2
From the publishers? Of course. We can buy the book used ourselves. We can buy them from
publishers. There are different mechanics in which it turns out to be a pretty profitable model.

Speaker 1
At the end of the day, you are still dealing in those bricks that we all know and love. And so
then maybe we should now segue over to you guys were looking at shipping these bricks
around. Obviously, a lot of people for a long time have talked about maybe we should… Why
haven't we seen digital textbooks soon?

Speaker 2
E-textbooks actually have been around since 2005, 2006. They've been around for a long
time. Done by the publishers? Done by the publishers. They were available in a browser. But
the user experience is so bad that you cannot really actually use them. They were.

Speaker 1
Traditional books that had been repurposed into a browser?

Speaker 2
It's not just that the books were repurposed into a browser. The whole formatting and what
you could do with them, it was just not conducive. You said you had to scroll up and down
all the time. The resolution of the screen needed you to scroll 20 times on one page up and
down. So the usability wasn't there. I think what we're really seeing now, the innovation
coming in education is because of tablets. Because of? Because of the tablets. Oh, tablets.
Ipad is a huge driver in the market. It's really changed the game in learning. I think almost 30
years of pent-up demand for innovation and education is now bubbling up to the top.

Speaker 1
I think you told me that initially you guys had a pre-ipad tablet of your own.

Speaker 2
Yes. When we started, this was even before the iPad was announced, our notion was you
need a tablet form factor for learning because the laptop style is not engaging enough.
Keyboard mouse doesn't work as good as touch. We built our own tablet and we actually had
a dual screen tablet where you could have a book and you can also write into the.

Speaker 1
Whole-you did this as a separate company, right?

Speaker 2
You completely-No, it's a completely separate funded by Andreason Harwoods. Mark
Andreason is on our board. Intel is also an investor in the company.

Speaker 1
The decision was made, let's keep textbook rentals over here.
Speaker 2
Yeah, because Novo was more... Initially it was hardware, but it's more about learning
science itself than an e-commerce play. The people that you need to build this company are
completely different set of people than you would need for check. It's a different company.

Speaker 1
You started with the idea that you were going to have to build your own hardware.

Speaker 2
I did. My daughters were actually part of that for me to really figure out how to make this
work. I was walking down the stairs one day and I saw my daughters, who are now nine and
six, they were doing homework. I just saw myself doing this decades ago in the same exact
manner, and I really felt, wow, technology is definitely not catching up to learning. But it was
really about you've got to have a tablet. It's not about a laptop.

Speaker 1
And especially not have to have that pathetic backpack.

Speaker 2
Absolutely. A typical backpack can weigh 22 pounds. 23-pound kid, it's crazy. I have to pick
my daughter's bag, put it in the car because she can't lift it. So it's that heavy. And it's going
to go away in the next five, six years.

Speaker 1
Well, why don't we do this? Why don't you give us a little walk-through and then maybe
when there's a few minutes left, you can come sit down and we'll get questions from the
audience or whatever.

Speaker 2
Sounds good. All right. Thank you. So over here, it's the No app, which is on iPad. It's called
textbooks. What you see on the screen over here is the main interface. We take a course view
for learning where the book is part of everything that you do. Everything that you put in your
course, PDFs and things like that can be put in here. I'm going to go into a biology book.
What you'll see is we have taken the current content that's available today that's being used in
colleges today, and we said as a first step of learning, how do you take what people are using
today and bring it into this world and then rapidly iterate and innovate from there. For
example, I can take this book and I can go into a page here. Now, as you can see, typically
exactly the way you highlight in a physical world, you can do stickies and all those things are
there. For example, you simply put your finger on the highlight and it takes it away from you.
Other bits of technology that we put together that if you double tap on a picture with labels,
we can convert any picture and label into an automatic quiz, which now you can use to study
yourself and come to answers.

Speaker 2
It's really trying to bring the technology into the learning process itself. As I can go through
all the answers, it eventually gives me a score and it tells me how did I do it last time? But the
image itself is also something which we say, All right, this is something important for me to
remember because the idea is to make books interactive but also let you personalize them,
that we're able to extract all the content that you think is important for you and pull it away.
Another interesting example is, say I go to a page over here. On this page, I've got the videos,
which is a content from the publisher, which we've also brought into the book that now you
can play videos for the topic. One of the key things in learning is going to be that rather than
chasing content all over the web, you need to bring in the content to the student at the point of
interaction to.

Summary:

 Chegg built warehouses and developed a sophisticated pricing system to manage

textbook rentals.
 The company faced skepticism about students returning the rented books, but found
that the majority of students were trustworthy.
 Chegg now offers additional services like scheduling, homework help, tutoring, and a
LinkedIn-like platform for students.
 E-textbooks have been around since 2005, but the user experience was poor until the
introduction of tablets like the iPad, which revolutionized learning and opened up
opportunities for innovation in education.