Chegg has initiated a federal antitrust lawsuit against Google, claiming that the tech giant’s implementation of AI-generated summaries in search results has severely impacted its website traffic and revenue. The lawsuit, filed in the U.S. District Court in Washington, D.C., specifically targets Google’s use of a feature known as "AI Overviews," which automatically generates answers to user queries at the top of search results, effectively reducing visibility for links to other websites.
Chegg’s CEO, Nathan Shultz, expressed concerns about the detrimental effects of Google’s practices on the online learning platform, stating that the search engine has "unjustly retained traffic" that traditionally directed users to Chegg’s services. Shultz characterized Google’s actions as "harmful and unsustainable," emphasizing that they have negatively influenced the company’s customer acquisitions, revenue, and workforce.
In light of its struggles, Chegg has also engaged Goldman Sachs to assist with a strategic review, considering options that may include going private or exploring a sale. The company’s financial situation has deteriorated significantly, with its stock price plummeting nearly 90% over the past year, trading at just $1.04, and its market valuation dropping to approximately $110 million.
The lawsuit alleges that Google is violating the Sherman Antitrust Act by leveraging its dominant position in online search to suppress competition and maintain its monopoly. Shultz further accused Google of compelling companies like Chegg to provide proprietary content to be featured in search results, all while benefiting from Chegg’s content without compensating the company.
Chegg’s traffic from non-subscriber sources reportedly fell by 49% in January compared to the same month the previous year, highlighting the significant impact of Google’s AI Overviews. The company recently reported a net loss of $6.1 million on total revenue of $143.5 million for the fourth quarter, marking a 24% decline year-over-year.
In response to the lawsuit, Google spokesperson José Castañeda defended the AI Overviews feature, claiming it enhances user experience by providing more helpful search results. He asserted that Google continues to drive billions of clicks to various websites, including those of smaller publishers, and vowed to contest what he described as "meritless claims."
The lawsuit adds to a growing list of legal challenges facing Google, which has been criticized for its AI-generated summaries since their launch last year. Critics, including the News Media Alliance, have warned that such features could have catastrophic effects on publishers and content creators already struggling financially.
This legal battle comes on the heels of a ruling by U.S. District Judge Amit Mehta, who previously determined that Google holds an illegal monopoly over online search. Mehta is set to hold hearings in April to consider potential remedies for Google’s practices, with a final decision expected by summer. Additionally, the Justice Department has launched a separate lawsuit against Google, accusing the company of maintaining monopolistic control in the digital advertising sector.
As Chegg seeks to address its challenges through legal means and strategic options, the outcome of this lawsuit may have significant implications for the future of online search and the competitive landscape for educational services.