Chegg Inc., once a leader in digital study assistance and textbook rentals, is making its most drastic structural overhaul yet, cutting 45% of its workforce in response to what it calls “the new realities of artificial intelligence.” The move underscores how generative AI tools — led by ChatGPT and similar technologies — have upended the online education landscape, eroding the company’s market share and forcing a rapid strategic pivot.

AI Disruption Forces a Strategic Reset

Chegg’s decision reflects a growing challenge for education technology firms that thrived in the pre-AI era. The company admitted that its traditional subscription-based homework help model has become increasingly obsolete as students turn to free, AI-driven alternatives. CEO Nathan Schultz said the layoffs are “deeply difficult but necessary” to realign Chegg’s business around AI-enhanced learning experiences.

The restructuring will affect roles across all business functions, with Chegg expecting to incur up to $25 million in severance and related costs. The company aims to streamline operations and accelerate investment in AI-driven tutoring, personalization, and content generation tools. Analysts view the decision as a make-or-break moment, as Chegg attempts to reposition itself as an AI education platform rather than a legacy content provider.

Market Reaction and Investor Sentiment

The announcement follows a sharp decline in Chegg’s financial performance. The company’s revenue for the first half of 2025 fell more than 20% year-over-year, with net income turning negative for the first time since 2018. Chegg’s shares have been in freefall, dropping over 80% from their 2021 peak, when pandemic-era demand fueled record growth.

Investors remain cautious. While the shift toward AI integration is seen as necessary, market confidence in Chegg’s ability to compete with free or low-cost AI tools remains low. Some analysts note that Chegg’s pivot echoes a broader pattern in the edtech sector — where once-dominant players like Coursera and Duolingo have also had to adapt their platforms to AI capabilities to sustain user engagement and revenue growth.

Industry-Wide Implications

Chegg’s retrenchment highlights how generative AI is forcing structural change across industries beyond education. The company’s experience mirrors challenges faced by traditional service-based platforms — from legal and consulting to media — where AI-driven automation is redefining value creation.

For investors, the layoffs point to both risk and opportunity. On one hand, Chegg’s cost-cutting signals declining profitability in legacy education models. On the other, its AI-driven roadmap could, if executed effectively, position it to serve a new generation of learners seeking adaptive, real-time digital education tools.

Outlook

Looking ahead, Chegg’s transformation will be closely watched as a test case for AI adaptation in the edtech sector. Success will depend on how effectively it integrates AI into its core offerings, rebuilds user trust, and differentiates itself from free alternatives.

As AI continues to reshape how students learn and interact with knowledge, Chegg’s reinvention could determine whether the company remains a player in global digital learning — or becomes another casualty of the AI revolution.