Chegg's Rent-Don't-Buy Textbook Mantra Takes Hold at California Schools

No more $120 chemistry books.

That’s the message from textbook-rental service Chegg Inc., which is urging college students to stop paying top dollar to buy their tomes. After three years of going after students directly, the company is now taking that mantra to bookstores.

Chegg, which rents books for as little as a third of their retail price, has forged partnerships with two school bookshops in California and one in Nevada. The deals will let the company offer its service through the retailers, starting in the August term. Chegg says it’s been approached by more than 25 other bookstores about similar arrangements.

Chief Executive Officer Dan Rosensweig, who joined the company in February, says students who rent all of their books for four years save an average of $2,000. That’s cut into revenue at stores, which have counted on students paying full price for their history, science and economics books. Trying to lessen that threat, retailers are now clamoring to get a piece of Chegg’s revenue.

“School bookstores are calling us up every day to ask us if we can build a rental program,” said Rosensweig, who used to run Activision Blizzard Inc.’s “Guitar Hero” business. Before that, he was chief of operations at Yahoo! Inc. “They appreciate the size of the problem and are trying to save their students money,” he said.

Big Chains

The success of Santa Clara, California-based Chegg may hinge on whether it gets squeezed out by the big bookstore chains. Barnes & Noble Inc. and Follett Corp. are starting separate rental programs, rather than funneling business to Chegg.

“They have to protect their franchise,” said Eric Weil, managing partner at research firm Student Monitor LLC in Ridgewood, New Jersey.

Chegg also faces competition from a fellow startup: San Mateo, California-based BookRenter.com Inc. That company lets students rent from its selection of 3 million textbooks, and it’s working with bookstores too.

For now, Chegg is making inroads with students. The company ships its books in bright orange boxes -- using a similar approach as Netflix Inc., which delivers DVDs in red envelopes. When students are done with the books at the end of the term, they ship them back.

Jackie Jasso, a sophomore at California State University, Fresno, says she’s done buying textbooks. She rented all her books this semester from Chegg for $300, saving 40 percent over buying them at the campus store.

“I don’t see any point in buying,” said Jasso, a 19-year- old accounting major. “It’s just way cheaper to rent.”

Store Kiosks

Joining forces with bookstores will make it easier for students to use Chegg by putting kiosks inside shops.

Ron Durham, director of Fresno State’s Kennel Bookstore, agreed to work with Chegg after seeing the company’s orange shipping boxes around campus. He told his board of directors that the school risked getting left behind if it didn’t adapt.

In January, Fresno State became the first campus to form a partnership with Chegg, allowing the Kennel store to get a commission on every transaction.

“If we didn’t do it, the students would have gone out on their own,” Durham said. “If a $110 book rents for $40 and it’s not your major and it’s something you’re just doing because you have to, why wouldn’t you do it?”

Long Beach, Reno

Bookstores at two other schools -- California State University, Long Beach, and the University of Nevada, Reno -- will follow Fresno State’s lead in August. Chegg also is in talks with California state universities in Fullerton and Chico. That’s still a tiny fraction of the 6,400 college campuses that Chegg serves through its mail-order service.

Nationwide, full-time students spent an average of $667 on required course material in the past year, according to a survey from the National Association of College Stores, or NACS. Chegg says that students who rent all of their textbooks can save at least $500 a year. Since it started in 2007, Chegg says it has saved students a total of more than $150 million.

The company’s investors include Menlo Park, California- based venture capital firms Kleiner Perkins Caufield & Byers and Foundation Capital. Chegg has raised more than $140 million.

The company probably will top $100 million in sales in 2010, up from about $10 million in 2008, two people familiar with the matter said in November. Chegg doesn’t disclose sales or profit.

Barnes & Noble

BookRenter.com is making its own push into bookshops. CEO Mehdi Maghsoodnia says his company has agreements with more than 25 university stores, which use the service to run their websites. Those partnerships are going to shake up the book market in the coming school year, he says.

“By August, the market is going to look very different,” Maghsoodnia said. “You’re going to see rentals offered by your campus on our platform at a very cost-effective basis.”

Follett, the largest operator of college bookstores, is working with BookRenter.com on its rental efforts. The River Grove, Illinois-based company expects about half of its 850 locations to have rental programs in the 2010 academic year.

Barnes & Noble, meanwhile, was renting books at 25 of its 636 campus stores, as of January. The company plans to devote “significant resources” to expanding the program to more of the colleges it serves.

Charles Schmidt, a NACS spokesman, said about a third of the association’s 3,000 members in the U.S. will have some sort of rental program by August.

Reno Store

In Reno, Chegg will have two kiosks set up in the ASUN bookstore when students return to campus after summer vacation. Currently, about 800 of the school’s 17,000 students are renting books, says Marie Stewart, the store’s director. That number may triple this year because of the Chegg partnership, she says.

In addition to saving money for students, the program will help the bookstore lower costs, Stewart says. Chegg tracks the popularity of the rentals, allowing stores to manage their inventory accordingly.

“We’re nervous about losing part of that revenue, but we’ll see it on the expense side,” Stewart said. “We just thought this would be a great opportunity for our students.”

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Joseph Galante in San Francisco at jgalante3@bloomberg.net

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